Annual Report 2006 ‡ Commerzbank Group

‡ annual report 2006 ‡ commerzbank group

/ www.commerzbank.com /

highlights of Commerzbank group

2006 20051) Income statement Operating profit (€ m) 2,628 1,757 Operating profit per share (€) 4.00 2.91 Pre-tax profit (€ m) 2,375 1,720 Consolidated surplus (€ m) 1,597 1,187 Earnings per share (€) 2.43 1.97 Operating return on equity (%) 21.5 17.2 Cost/income ratio in operating business (%) 59.7 67.2 Return on equity of consolidated surplus (%) 14.1 12.8

31.12.2006 31.12.20051) Balance sheet Balance-sheet total (€ bn) 608.3 444.9 Risk-weighted assets according to BIS (€ bn) 231.5 149.7 Equity (€ bn) as shown in balance sheet 15.3 13.5 Own funds (€ bn) as shown in balance sheet 30.1 21.7

BIS capital ratios Core capital ratio, excluding market-risk position (%) 6.8 8.2 Core capital ratio, including market-risk position (%) 6.7 8.0 Own funds ratio (%) 11.1 12.5

Commerzbank share Number of shares issued (million units) 657.2 656.8 Share price (€, 1.1.–31.12.) high 33.96 27.06 low 24.66 15.17 Book value per share2) (€) 22.34 20.80 Market capitalization (€ bn) 19.0 17.1

Customers 8,920,000 8,175,000

Staff Germany 27,250 25,304 Abroad 8,725 7,752 Total 35,975 33,056

Short/long-term rating Moody’s Investors Service, New York P-1/A2 P-1/A2 Standard & Poor’s, New York A-2/A- 3) A-2/A- Fitch Ratings, London F1/A F2/A-

1) After adjustment due to change in the provision for possible loan losses; 2) excluding cash flow hedges; 3) raised to A-1/A in March 2007.

structure of commerzbank group

Board of Managing Directors

Corporate Divisions

Commercial Group Retail Banking and Corporate and Real Estate, Public Services Management Asset Management Investment Banking Finance and Treasury

Staff Banking Service departments departments departments

Accounting and Taxes German Mittelstand Commercial Real Estate Information Asset Management Technology Credit Risk and Eco- • Corporate Banking Commerz Grundbesitz- nomic Capital Control International gesellschaft mbH Organization Asset Management • Financial Institutions Credit Risk Manage- CommerzLeasing Transaction Banking ment Private and Private Banking • BRE Bank SA und Immobilien AG Business Customers Private and Group Treasury Financial Controlling Business Customers Corporates & Markets Public Finance Global Credit Risk Retail Credit Management Commer- cial Real Estate and comdirect bank AG Public Finance

Global Credit Risk Management Corporates & Markets

Group Communications

Group Compliance

Human Resources

Internal Auditing

Legal Services

Risk Strategy/Market Domestic and foreign branch network and Operational Risk Control

Strategy and Controlling Cooperation in bancassurance area

Subsidiaries and participations in Germany and abroad 2006 Awards for excellence

EUROMONEY 2006 Awards for Excellence Germany EUROMONEY 2006 Best Bank Real Estate Awards Best Global Commercial Bank

‡ Ideas ahead ‡

All our efforts go towards doing justice to our customers’ growing demands: every day, the staff at our branches demonstrate their expertise, commitment, ambition and great creativity when dealing with their customers. Our various fields of business have ”ideas laboratories” where we are constantly working on innovative products and services. We believe the results are impressive.

This annual report gives you the highlights of the products and services we provided last year. The members of staff who were directly involved in the development and implementation of these new ideas present them to you. They do so on behalf of all those who contributed to Commerzbank’s excellent results in 2006.

We are living modern banking: ideas ahead. contents

To our shareholders 4 Corporate governance report incl. remuneration report 13 Management report Survey of the Commerzbank Group 6 Remuneration report 17 Information pursuant to Arts. 289 (4) and 315 (4) of the German Commercial Code (HGB) 26 Retail Banking and Asset Management 30 Corporate and Investment Banking 40 Commercial Real Estate, Public Finance and Treasury 50 Staff and welfare report 58 Share price, strategy and outlook 64 Risk report 70 Financial statements of the Commerzbank Group 2006 Overview 102 Income statement 105 Balance sheet 107 Statement of changes in equity 108 Cash flow statement 110 Notes 112 Group auditors’ report 203

Report of the Supervisory Board 206 Boards, seats on other boards, Group managers, managers of branches and Group companies Supervisory Board 211 Central Advisory Board 213 Board of Managing Directors 214 Regional Board Members and Group COO 216 Group managers 217 Managers of domestic main branches 218 Managers of larger corporates centres 218 Managers of foreign branches 219 Board of Trustees of Commerzbank Foundation 219 Managers of domestic Group companies 220 Managers of foreign Group companies 221 Regional Advisory Committees 222 Seats on other boards 234 Tables and charts Glossary 238 Index 243 Business progress 1968-2006 244 Klaus-Peter Müller March 2007 Chairman of the Board of Managing Directors

2006 was the best year in our history. We confirmed our regained profitability by posting a record result, an impressive achieve- ment. As Germany’s number two bank, we are respected and highly regarded both nationally and internationally. Even critical rating analysts and institutional investors have acknowledged our progress. It is also reflected in the encouraging rise in the Commerzbank share price. We not only reached our very demanding earnings targets, we exceeded them. The after-tax return on equity of 11.2% – after adjustments for extraordinary income items and restructuring expenses – is well above the 10% target that we set ourselves for 2006. This was achieved despite an unforeseeable special risk provision of nearly €300m. At the same time, the adjusted cost/income ratio improved from 69.8% to a healthy 64.0%. This means that we have come much closer to our medium-term target of no more than 60%. We would like to share our business success with you, our shareholders. We will therefore propose to the Annual General Meeting that the dividend be raised by 50% to €0.75 per share. This is equivalent to a total payout of €493m – our highest distribution ever, with the exception of 2000, when we paid a special dividend because of the hefty proceeds from the IPO of comdirect bank. Our staff will also receive a larger profit-sharing payment. With the return on equity achieved in 2006 we surpassed the third of the yield levels set within the bank. The Bank will therefore pay out an amount of €73.5m, which will be distributed on an individual performance-related basis. Our profit figures show that we have achieved a great deal in recent years. After several years of making operations leaner and adjusting to changed market conditions, Commerz- bank is back on track and has caught up with the European banking industry. We are confident that the gap between our return on equity and that of comparable foreign competitors will gradually close in the years ahead. So we won’t be resting on our laurels, but have raised the target for this year’s adjusted after-tax return on equity from 11% to over 12%. This is only an interim goal, however. We hope to attain a sustainable 15% by the year 2010. To reach this goal, we must continue to shift our earnings to comparatively stable commission income and keep our costs under control. In areas in which we want to grow, we will no doubt be creating new jobs. At the same time, job cuts may be unavoidable if new technology makes certain work processes redundant. We also expect support from the economy, which has finally picked up speed. My im- pression is that Germany is now in an upbeat mood both politically and economically, and this is a very favourable environment for the banking business. We intend to take advantage of this opportunity. We have therefore decided on an offensive strategy for the next few years and have established efficiency and growth programmes in all operative departments. The element that we can realistically plan is organic growth, both at home and abroad. We are naturally also interested in the subject of acquisitions, and we are looking at the few opportunities available and analysing them carefully. However, they have to make strategic sense, be economically tenable and create added value for our shareholders. Unless these criteria are fully met, we prefer not to commit ourselves. Let me take this opportunity to say a word about Commerzbank’s corporate responsibility, an area in which we also made a great deal of progress in 2006. As promised last year, we have now published a code of ethical conduct. This applies to all staff members of Commerzbank AG – from senior management to trainees. We have also taken the important step of joining the United Nations Global Compact. The companies and organizations that participate in this voluntary network support and advocate human rights, fair labour practices and environmental protection. They also agree to undertake measures to fight corrup- tion. We see our participation in the Global Compact as an incentive as well as an obligation. In Commerzbank’s second sustainability report, to be published in autumn this year, we will report again in depth on our commitment and our progress in this area. We have, incidentally, for the first time calculated our expenses within the framework of Corporate Social Responsibility. Group-wide we expended more than €37m in 2006 on donations, sponsorships and other social activities. This demonstrates how seriously we take our responsibility. We feel that we are well equipped in all areas for the challenges of the future. We owe our healthy condition to our staff and also to the confidence shown by our shareholders, customers and business partners. I cordially invite you to this year’s Annual General Meeting on Wednesday May 16, 2007 at the Jahrhunderthalle Frankfurt and look forward to seeing you there.

6 MANAGEMENT REPORT

Survey of the Commerzbank Group

World economy maintains strong growth 2006 was another extremely positive year for the world economy: for the third time in a row, a growth rate of some 5% was achieved. Once again it was South East Asia and North America that provided the main boost to this growth. How- ever, the distinct tightening of monetary policy in the US led to the economy there losing steam in the second half. Even if the world economy grows somewhat more slowly in 2007, the economic environment can be expected to remain positive.

German business surprisingly dynamic The big surprise last year was undoubtedly the upswing in German business, with a growth rate of 2.7% – the highest since the turn of the millennium. Strong demand for exports continued to be the main driver behind the economy, but companies also increased their capital expenditure, and construction reported a positive performance for the first time since 1999. Private consumption continued to be the weak feature despite a turn for the better in the labour market. In view of an expected weakening of the world economy, the raising of interest rates by the ECB and the tax increases that came into force at the beginning of 2007, the growth rate this year is likely to be lower. Nevertheless, there is plenty to suggest that the upturn will continue, albeit at a slower pace. Our assumption for this year is a growth rate of 1.7%. Once again, the main feature on the financial markets was a significant rise in share prices. The surprisingly good economy and renewed strong increases in corporate profits pushed the DAX up by 22%. Given the global tendency for central banks to raise their key rates, yields on long-term government bonds initially rose sharply. Once the high point had been reached in the middle of the year, however, increasing concerns about the US economy pushed them back down again. On balance, yields in both the US and the Eurozone were somewhat higher at the end of the year than at the beginning.

Commerzbank Group reports record results The positive economy and buoyant equity markets were favourable for our business. We not only met our earnings targets – we exceeded them. We achieved a return on equity on our consolidated surplus of 14.1% and a cost/income ratio of 59.7%. This success means that we can reward our shareholders with a 50% higher dividend. We laid the basis for sustained future growth in 2006. We have almost completed the integration of Eurohypo, and have started growth initiatives in our core business areas. We have also continued our efforts to keep costs under control through improvements in efficiency.

Consolidated total assets over €600bn When analysing our figures it is important to remember that Eurohypo was not consolidated at the end of 2005. As previously agreed, we raised our holding by 49.1% to 98.0% on March 31, 2006 and fully integrated Eurohypo into the consolidated balance sheet from this date onward. At the end of 2006 the SURVEY OF THE COMMERZBANK GROUP 7

Commerzbank Group’s total assets stood at €608.3bn, compared with €444.9bn one year earlier. On the asset side, the full consolidation of Eurohypo mainly affected claims on customers (up by 91.6% to €294.5bn) and the investments and securities portfolio (up by 56.9% to €135.3bn). The biggest changes in liabilities were in liabilities to customers (up by 37.3% to €141.2bn) and securitized liabilities, which more than doubled to €228.8bn. The changes in liabilities to customers were mixed: savings deposits fell by 12.1% but demand and time deposits rose sharply by 44.1%.

Sustained earnings growth Comparison between the figures reported for 2006 and 2005 in the income statement is also of only limited use. Up to the end of the first quarter in 2006, Eurohypo was only consolidated at equity. In other words, pro-rata earnings attributable to us were reported as part of net interest income under the item current result on investments. From the second quarter onwards, all of Euro- hypo’s figures are included in the income statement. In 2006, the Commerzbank Group posted net interest income before provisions for possible loan losses of €3.92bn, 23.7% higher than in 2005. On a pro- forma basis, i.e. taking Eurohypo fully into account in the comparison, we achieved net interest income at the level of the previous year. While we succeeded in raising net interest income from private customers and in the Mittel- stand business, the Public Finance segment and Treasury had to cope with a difficult interest-rate environment. Provisions for possible loan losses totalled €878m. To harmonize the Commerzbank and Eurohypo risk models, we took a one-off expense of €293m in retail credit business in the third quarter. When this effect is stripped out of the calculations, the current provision dropped by a good fifth – not least as a result of our cautious valuation allowance policy in recent years. The provision for possible loan losses remained high for retail customers, but the need in our Mittelstandsbank and in Corporates & Markets was lower. Here we were even able to make net releases of provisions in the fourth quarter. In the consolidated financial statements for 2006, we have undertaken a wide-ranging adaptation of the valuation provisions under IFRS to conform to the regulatory requirements of Basel II. The portfolio valuation allowances previously made for losses incurred but not yet recognized in the performing portfolio were switched to a process derived from the Basel II schema, taking off- balance sheet lending business into account for the first time. Adjustments were also made to 2005 and earlier years. The changes had virtually no effect on the income statement and only led to restatements in the balance sheet, particularly in retained earnings and investments in associated companies.

Structure of provision for possible loan losses

Commerzbank Group, in € m 2006 20051) 2004 2003 2002 Germany 845 584 836 791 956 Abroad 33 –63 0 293 365 Total net provisioning 878 521 836 1,084 1,321

1) after adjustment 8 MANAGEMENT REPORT

Net commission income improved strongly by 18.5% to €2.86bn. The rise was across the board. The sustained upward trend came mainly from asset management and from retail securities transactions. These signs of progress show that we are on the right track with our strategy of aiming for higher commission income. The biggest rise last year was in trading profit, which rose by more than 70% to the outstanding figure of €1.18bn. We were particularly successful in equity derivatives, interest-rate products and foreign exchange. The high profit on our investments and securities portfolio (€770m after €647m in the previous year) mainly came from the disposal of our holdings in Korea Exchange Bank and Ferrari. This reflected a continuation of our policy of disposing of non-strategic investments whenever opportune. We are perfectly willing to add new investments, however, if we believe it makes business sense. For instance, we acquired a 1.0% stake in Deutsche Börse AG and 15.3% of the Russian Promsvyazbank.

Administrative expenses still under control We report administrative expenses of €5.20bn for 2006, 11.6% higher than in the previous year. On a pro-forma basis, this represents an increase of only 3%. The rise comes primarily from personnel expenses. This is because, in view of our good performance, we have made higher provisions for bonuses and incentive and performance plans. The number of employees has risen from 33,056 at the end of 2005 to the current level of 35,975. This number includes since April 2006 the approx. 2,400 employees of Eurohypo AG. Other expenses grew more moderately, and current depreciation on fixed assets and other intangible assets actually fell by another 23%.

Dividend payout reflects improved profitability Operating profit grew year on year by almost 50%, reaching the record level of €2,628m. Restructuring expenses totalling €253m arose primarily for projects related to the integration of Eurohypo and improvements in IT processes and transaction banking. After deduction of these restructuring expenses, taxes amounting to €587m and profit attributable to minority interests of €191m, the balance of €1,597m (previous year: €1,187m) represents the consolidated surplus. Of this amount, €1,104m will go towards retained earnings. The remaining consolidated profit of €493m represents the distributable profit of Commerzbank Aktiengesellschaft. We shall propose to the Annual General Meeting that the distributable profit be used to pay a dividend of 75 cents per Commerzbank share. We paid a dividend of 50 cents per share in the previous year, representing a total payout of €328m. Earnings per share rose from €1.97 in 2005 to €2.43.

Capital base significantly strengthened Balance-sheet equity capital rose from €13.5bn in 2005 to the current level of €15.3bn. While subscribed capital and capital reserve were virtually unchanged, retained earnings rose by 28.1% as a result of the transfer from the consolidated surplus, and the consolidated profit was 50.3% higher. Despite the disposal of investments, the revaluation reserve remained at the solidly high level of €1.7bn. SURVEY OF THE COMMERZBANK GROUP 9

Revaluation reserve 2.0 in € bn 1.8 1.7 1.6 1.5 1.4 1.5

1.1

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2005 2006

Hybrid capital was reported for the first time in the Commerzbank Group’s balance sheet; the figure reported here at the end of 2006 totalled €3.5bn. First, we succeeded in issuing two hybrid bonds for institutional clients in parallel with the acquisition of the second tranche of the Eurohypo investment. In the autumn we launched a bond for private investors, for which there was much demand. Subordinated liabilities also rose sharply by 70.8%, while profit-sharing certificates were cut back by 14.7%. Risk-weighted assets were up year on year by a good 50% to €231.5bn. Thanks to the significantly stronger capital base – partly as a result of hybrid capital – the core capital ratio including market-risk positions remained within our target range of 6.5% to 7%, at 6.7%. Our own funds ratio stood at 11.1% at the end of 2006.

New structure for segment reporting We changed the organizational structure of the Commerzbank Group as part of the process of integrating Eurohypo. We have adapted our segment reporting to this new structure. In addition to the Retail Banking and Asset Management and the Corporate and Investment Banking divisions, we have now created the Com- mercial Real Estate, Public Finance and Treasury division. Details of the allocation of business areas and foreign regions to the various divisions may be found on page 136 of the annual report. To allow a better comparison, the figures for the previous year have also been adjusted to conform to the new structure.

Special charge in the Private and Business Customers segment The Eurohypo retail banking business was integrated into this segment. The increase in the size of the loan portfolio pushed net interest income up by 10.9%. Net commission income also rose sharply by 9%. A negative feature was the extraordinary item mentioned above – a €293m rise in the provisions for possible loan losses. Administrative expenses also went up a good 9%; the main reason for this is the various growth programmes in the branch business and at comdirect bank. We report an operating loss of €58m compared with a profit of €231m in the previous year. Adjusted for the extraordinary item, we would have had a stable profit despite the heavy capital expenditure. Most of the restructuring expense also falls within this segment, firstly to set up more ”branches of the future”, and secondly to expand the new platform for the retail credit business. 10 MANAGEMENT REPORT

Asset Management: solid inflows of funds Assets under management grew by 14% to €112bn. Thanks to this increase in volume combined with favourable market conditions we succeeded in improving net commission income by 27.8% to €735m. On the other hand, expenses also rose significantly by 27.3%. One of the reasons for this was the jump in personnel expenses as employees participated in the Bank’s solid performance. Moreover, cominvest started a five-year growth programme last year which not only hit current administrative expenses but also initiated the need for restructuring provisions amounting to €22m. Operating profit rose by 15.8% to €139m.

Mittelstand carries on its successful course The domestic Mittelstand business was assisted in its net interest income and provisions for possible loan losses by the economic revival in Germany. It also achieved noteworthy growth in net commission income. Our Polish subsidiary BRE Bank had the best results in its history and contributed to the solid performance of this segment. Income rose by 10.8% to €1.9bn; administrative expenses were up by a moderate 3.7% – almost all as a result of BRE Bank’s business expansion. The operating profit reached €817m, compared with €670m a year earlier. Mittelstand accordingly contributed just under one-third of the Commerzbank Group’s result.

Income at Corporates & Markets showing a sustained rise This segment reported another good improvement in its profit last year. Our sharpened focus on and orientation towards customer-related business proved to be the right strategy. Income rose by 19.6% while administrative expenses, despite higher provisions for bonuses, only went up by 1.5%. Operating profit was up by 65.4% to €617m. The key return figures rose in line with this pleasing trend. Above all the cost/income ratio, at 61.2%, is very low compared with other investment banking entities.

New segments: Commercial Real Estate and ... This newly created segment encompasses Eurohypo’s commercial real estate business, CommerzLeasing und Immobilien AG and Corecd GmbH (Commerz- bank AG’s commercial real estate business). The Commerz Grundbesitz Group, a provider of open-ended real-estate funds, is included in this segment with

I Operating profit 960 Commerzbank Group I Net profit profit per quarter 743 700 in € m 631 551 476 401 429 338 337 352 301 268 285 217 180

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2005 2006 SURVEY OF THE COMMERZBANK GROUP 11

effect from January 2007, but in this segment report still falls under Asset Management. The main feature of 2006 was the record new business figure of €35bn – 15% up on the previous record year of 2005. It is not possible to compare the reported figures. On a pro-forma basis, there was a remarkable 38.5% improvement in operating profit. Of the restructuring expenses for the integration of Eurohypo, €13m relate to Commercial Real Estate.

... Public Finance and Treasury This is the umbrella for Hypothekenbank in Essen, Erste Europäische Pfandbrief- und Kommunalkreditbank in Luxemburg, Eurohypo’s public finance business and the banking department Group Treasury. Here too it is not possible to compare the figures. On a pro-forma basis, operating profit fell by 7%. This was due to the difficult interest-rate environment last year.

Commerzbank Group earnings targets exceeded We had targeted a return on equity of the consolidated surplus of more than 10% excluding special factors. We are reporting a return of 14.1% for 2006; on an adjusted basis this comes to 11.2%. In 2005, the reported return was 12.8%, or 9.9% excluding extraordinary items. We are accordingly a good deal closer to our goal of achieving an after-tax return on equity of 15% by 2010. We intend to advance further along this path in 2007. The cost/income ratio is also an indicator of our success. Having been 67.2% in the previous year, it was 59.7% in 2006. We have therefore already hit our long-term target of a cost/income ratio of no more than 60%.

The pro-forma figures have not been audited. 12 MANAGEMENT REPORT

Quarter-by-quarter trends

2006 financial year

€ m Total 4th quarter 3rd quarter1) 2nd quarter1) 1st quarter1) Net interest income 3,916 975 1,050 1,060 831 Provision for possible loan losses –878 –79 –415 –225 –159 Net interest income after provisioning 3,038 896 635 835 672 Net commission income 2,861 781 703 659 718 Trading profit2) 1,177 303 183 355 336 Net result on investments and securities portfolio 770 50 91 184 445 Other result –14 –4 17 –6 –21 Operating expenses 5,204 1,395 1,292 1,327 1,190 Operating profit 2,628 631 337 700 960 Restructuring expenses 253 39 – 214 – Pre-tax profit 2,375 592 337 486 960 Taxes on income 587 174 84 146 183 After-tax profit 1,788 418 253 340 777 Profit/loss attributable to minority interests –191 –66 –36 –55 –34 Consolidated surplus 1,597 352 217 285 743

2005 financial year1)

€ m Total 4th quarter 3rd quarter 2nd quarter 1st quarter Net interest income 3,167 832 770 845 720 Provision for possible loan losses –521 –29 –140 –165 –187 Net interest income after provisioning 2,646 803 630 680 533 Net commission income 2,415 645 599 593 578 Trading profit2) 685 217 212 6 250 Net result on investments and securities portfolio 647 190 79 84 294 Other result 26 –9 6 26 3 Operating expenses 4,662 1,370 1,097 1,088 1,107 Operating profit 1,757 476 429 301 551 Restructuring expenses 37 37 – – – Pre-tax profit 1,720 439 429 301 551 Taxes on income 427 89 130 88 120 After-tax profit 1,293 350 299 213 431 Profit/loss attributable to minority interests –106 –12 –31 –33 –30 Consolidated surplus 1,187 338 268 180 401

1) After adjustment due to change in the provision for possible loan losses. 2) Starting with the 2006 financial year, the net result on hedge accounting is shown as part of the trading profit; an adjustment to the figure reported for the previous year was made accordingly.

Corporate governance report

Responsible corporate governance has always been a high priority at Commerz- bank. That is why we – the Supervisory Board and the Board of Managing Directors – expressly support the Code and the goals and objectives it pursues. Even at the time of publication of the German Corporate Governance Code, Commerzbank’s Articles of Association and the rules of procedure for the Board of Managing Directors and Supervisory Board largely complied with its requirements. Wherever this was not yet the case, we have adjusted them to meet the regulations of the German Corporate Governance Code. The Articles of Associa- tion and the rules of procedure are available on the internet. Commerzbank’s corporate governance officer is Günter Hugger, Head of Legal Services. He is the person to contact for all corporate governance issues and has the task of advising the Board of Managing Directors and the Super- visory Board on the implementation of the German Corporate Governance Code and of reporting on its implementation by the Bank.

Recommendations of the German Corporate Governance Code The Bank declares every year whether the recommendations of the Commission regarding conduct have been and will be complied with or explains which recommendations have not been and will not be implemented. This declaration of compliance by the Board of Managing Directors and the Supervisory Board is published on the Commerzbank website. The previous declarations of compliance made since 2002 can also be found there. Commerzbank complies with virtually all of the recommendations of the Ger- man Corporate Governance Code in its version dated June 12, 2006; it deviates from them in only two points: According to section 4.2.2, the full Supervisory Board should discuss and regularly review the structure of the system of compensation for the Board of Managing Directors. The Supervisory Board has entrusted matters related to the compensation of the Board of Managing Directors to its Presiding Committee, which resolves upon and deals with them independently. This procedure has proved successful. The Presiding Committee discusses the structure of the system of compensation, regularly reviews it and determines the amount of compensation for members of the Board of Managing Directors. It reports to the full Supervisory Board on its deliberations and decisions. According to section 5.3.2 of the Code, the Audit Committee should deal not only with accounting issues and the audit of the annual financial statements, but also with issues related to the Bank’s risk management. The Supervisory Board of Commerzbank has entrusted risk-management issues to the Risk Committee, which has dealt with the Bank’s credit, market and operational risk for decades now, rather than to the Audit Committee. The fact that the chairman of the Audit Committee is also a member of the Risk Committee of the Supervisory Board ensures that the Audit Committee is extensively informed about risk management issues. 14 CORPORATE GOVERNANCE REPORT

Suggestions of the German Corporate Governance Code Commerzbank also largely complies with the suggestions of the German Cor- porate Governance Code, deviating from them in only a few points: In derogation of section 2.3.3, the proxy can only be reached up to the day of the Annual General Meeting. However shareholders present or represented at the Annual General Meeting are able to give their proxy instructions on the day of the meeting as well. In section 2.3.4, it is suggested that the Annual General Meeting be broadcast in its entirety on the internet. We broadcast the speeches of the Chairman of the Supervisory Board and the Chairman of the Board of Managing Directors, but not the general debate. For one thing, a complete broadcast seems inappropri- ate given the length of annual general meetings; for another, a speaker’s personal rights have to be considered. Section 3.6 of the German Corporate Governance Code suggests that separate preparatory meetings should be held regularly with shareholders and employees. We arrange such preparatory meetings only if the need arises. According to section 5.1.2, the maximum possible term of appointment of five years should not be the rule for first-time appointments of members of the Board of Managing Directors. Commerzbank has followed this suggestion for first-time appointments since 2002; however Mr Knobloch has been appointed for five years, as prior to joining the Commerzbank Board of Managing Directors he had been CEO of Eurohypo, a board position comparable in its scope and significance. Section 5.3.2 suggests that the chairman of the Audit Committee should not be a former member of the Board of Managing Directors. We have deliberately not adopted this suggestion as the expertise of the person in question takes priority for us. The suggestion contained in section 5.4.6 that the members of the Super- visory Board should be elected at different dates and for different periods of office is not compatible with the German system of co-determination, as employee representatives have to be elected for five-year terms at the same time. The suggestion could therefore only be applied to shareholder representatives and would consequently lead to unequal treatment. Finally, it is suggested in section 5.4.7 of the Code that the variable compensation of Supervisory Board members should also be related to the long-term performance of the company. At Commerzbank, the variable compensation of Supervisory Board members is related to the dividend payment. We consider this to be a transparent and readily understandable system.

Board of Managing Directors The Board of Managing Directors is responsible for the independent management of the Company. In this function, it has to act in the Company’s best interests and is committed to achieving a sustained increase in the value of the Company and to respecting the interests of shareholders, customers and employees. It develops the Company’s strategy, coordinates it with the Super- visory Board and ensures its implementation. In addition, it sees that efficient CORPORATE GOVERNANCE REPORT 15

risk management and risk control measures are in place. The Board of Managing Directors conducts Commerzbank’s business activities in accordance with the law, the Articles of Association, its rules of procedure and the relevant employment contracts. It cooperates on a basis of trust with Commerzbank’s other bodies and with employee representatives. The composition of the Board of Managing Directors and the responsibilities of its individual members are presented on pages 214 and 215 of this annual report. Once again, in the 2006 financial year no members of the Board of Managing Directors were involved in conflicts of interest as defined in section 4.3 of the German Corporate Governance Code. Extensive details of the compensation paid to the members of the Board of Managing Directors are given in the Remuneration Report on pages 17-22.

Supervisory Board The Supervisory Board advises and supervises the Board of Managing Directors in its management of the Company. It conducts its business activities in accordance with legal requirements, the Articles of Association and its rules of procedure; it cooperates closely and on a basis of trust with the Board of Managing Directors. The composition of the Supervisory Board and its committees is presented on pages 211 and 212 of this annual report. Information on the work of this body, its structure and its control function is provided by the report of the Supervisory Board on pages 206-210. Every two years the Supervisory Board examines the efficiency of its activities by means of a detailed questionnaire. After a detailed survey was carried out at the end of 2005, there followed an abridged investigation in 2006. The result showed that the work of the Supervisory Board at Commerzbank continues to be considered professional, and the division of labour between the full Supervisory Board and its committees is seen as sensible and efficient. There will be another extensive efficiency check in 2007. There were no conflicts of interest as defined in section 5.5 of the German Corporate Governance Code during the year under review. Details of the compensation paid to the members of the Supervisory Board are given in the Remuneration Report on pages 23-25.

Accounting For accounting purposes, the Commerzbank Group applies International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS); the parent company financial statements of Commerzbank AG are prepared under the rules of the German Commercial Code (HGB). The consolidated financial statements and the financial statements of the parent bank are prepared by the Board of Managing Directors and approved by the Supervisory Board. The audit is performed by the auditors elected by the Annual General Meeting. The annual financial statements also include a detailed risk report, providing information on the Company’s responsible handling of the various types of risk. This appears on pages 70-99. 16 CORPORATE GOVERNANCE REPORT

Shareholder relations and communication The Annual General Meeting of shareholders takes place once a year. Its main tasks are to resolve upon the appropriation of the distributable profit and ap- prove the actions of the Board of Managing Directors and the Supervisory Board and any amendments to the Articles of Association. If necessary, it authorizes the Board of Managing Directors to undertake capital-raising measures and approves the signing of profit-and-loss transfer agreements. Each share entitles the holder to one vote. The Bank’s shareholders may submit recommendations or other statements by letter or e-mail or may present them in person. The Bank’s head-office quality management unit is responsible for dealing with written communication. At the Annual General Meeting, the Board of Managing Directors or the Supervisory Board comment or reply directly. At the same time, shareholders may influence the course of the Annual General Meeting by means of counter-motions or motions to extend the agenda. Shareholders may also apply for an Extra- ordinary General Meeting to be convened. Commerzbank informs the public – and consequently shareholders as well – about the Bank’s financial position and earnings performance four times a year; further corporate news items that may affect the share price are published in the form of ad hoc releases. The Board of Managing Directors reports on the annual financial statements and the quarterly results in press conferences and analysts’ meetings. Commerzbank is increasingly using the possibilities offered by the internet for reporting purposes; those interested can find a wealth of information on the Commerzbank Group at www.commerzbank.com. We are committed to communicating in an open and transparent manner with our shareholders and all other stakeholders. We intend to maintain this commitment in future.

Frankfurt, February 13, 2007

Commerzbank Aktiengesellschaft The Board of Managing Directors The Supervisory Board

Remuneration Report

The report follows the recommendations of the German Corporate Governance Code and takes account of the requirements of the German Commercial Code and IFRS as well as of the Disclosure of Remuneration of Members of the Board of Managing Directors Act (VorstOG), which came into force on August 11, 2005.

Board of Managing Directors

Principles of the remuneration system The Supervisory Board has delegated its responsibility for remuneration for the Board of Managing Directors to its Presiding Committee, comprising Dr. h.c. Martin Kohlhaussen as Chairman, Uwe Tschäge as Deputy Chairman of the Supervisory Board, Prof. Dr. Jürgen F. Strube and Werner Malkhoff. In determining and, when appropriate, changing the remuneration structure, particular attention is paid to the situation and level of success achieved by the Company as well as to the performance of the Board of Managing Directors. Reviews are carried out routinely every two years. The current remuneration structure for members of the Board of Managing Directors was decided in July 2004 and supplemented in November 2006. The results of the first routine review of the remuneration structure did not have any effect on the year under review. Remuneration comprises the following components: remuneration unrelated to performance, a variable performance-related bonus, long-term performance plans and pension commitments.

Components comprising remuneration unrelated to performance The components comprising remuneration unrelated to performance include basic salary and remuneration in kind. The basic salary, which is paid in equal monthly amounts, is €760,000 for the chairman of the Board of Managing Directors and €480,000 for the other members of the Board. Remuneration in kind mainly consists of use of a company car and insurance contributions, and tax and social security contributions thereon. The specific amount varies between the individual members of the Board depending on their personal situation.

Components comprising performance-related bonus Besides the fixed salary, members of the Board of Managing Directors receive a variable bonus based on the following key figures: return on equity (RoE) before tax, cost-income ratio (CIR) and operating earnings before tax (excluding special factors). Targets for each of these three equally-weighted parameters and a target bonus are set for each of the members of the Board of Managing Directors; the bonus resulting from these inputs is limited to twice the target bonus. To reward the individual performance of members of the Board of Managing Direc- tors and to take account of exceptional developments, the Presiding Committee 18 MANAGEMENT REPORT / CORPORATE GOVERNANCE REPORT

may in addition raise or lower the bonus so calculated by up to 20%. Pay for serving on the boards of consolidated subsidiaries is set off against the variable bonus (this amounted in 2006 to a total of €543,000). The bonus for one financial year is paid out in the following year.

Long-term performance plans For several years, the members of the Board of Managing Directors and other executives and selected staff of the Group have been able to participate in long- term performance plans (LTPs). These are virtual stock option plans that are offered each year and contain a promise to pay in the event that the Commerz- bank share price outperforms the Dow Jones Euro Stoxx Banks Index over three, four or five years and/or the Commerzbank share price gains at least 25% in absolute terms. If these hurdles are not met after five years, the promise to pay lapses. If payments are made, members of the Board of Managing Directors will each invest 50% of the gross amount paid out in Commerzbank shares. In order to participate in the LTPs, eligible participants have to invest in Commerzbank shares. Members of the Board of Managing Directors may participate with up to 2,500 shares, the chairman of the Board of Managing Directors with up to 5,000 shares. Members of the Board of Managing Directors participated in the last financial year with personal holdings of shares in the 2006 LTP as follows:

LTP 2006 Number of Attributable fair value in € participating when the shares pro-rated on shares were granted 31.12.20061) Klaus-Peter Müller 5,000 174,550 24,550 Martin Blessing 2,500 87,275 12,275 Wolfgang Hartmann 2,500 87,275 12,275 Dr. Achim Kassow 2,500 87,275 12,275 Bernd Knobloch 2,500 87,275 12,275 Klaus Patig – – – Michael Reuther2) ––– Dr. Eric Strutz 2,500 87,275 12,275 Nicholas Teller 2,500 87,275 12,275

The amount of remuneration realized from participating in the 2006 LTP may vary significantly from the figures in the table and – as with the 1999, 2000 and 2001 LTPs – may even fall to zero, as the final amount paid out is not fixed until the end of the term of each LTP. Owing to the performance of the Commerzbank share price in the year under review, payments were made under the 2002 and 2003 LTPs. These were concluded with payments per participating share of €80 for the 2002 LTP and €100 for the 2003 LTP.

1) Amount of provisions made for the LTP as at December 31, 2006. 2) Mr Reuther was not yet a member of the Commerzbank Board of Managing Directors at the time. REMUNERATION REPORT 19

Listed below are the payments to members of the Board of Managing Direc- tors who participated in these plans:

LTP 20023) LTP 20033) Number of Amount Number of Amount participating in € participating in € shares shares Klaus-Peter Müller 5,000 400,000 5,000 500,000 Martin Blessing 2,500 200,000 2,500 250,000 Wolfgang Hartmann 2,500 200,000 2,500 250,000 Nicholas Teller – – 2,500 250,000

Pensions The Bank provides members and former members of the Board of Managing Directors or their surviving dependants with a pension. A pension is paid if, upon leaving the Bank, members of the Board of Managing Directors

• have celebrated their 62nd birthday • are permanently unable to work • end their employment contract with the Bank after celebrating their 58th birthday having been a member of the Board of Managing Directors for at least ten years, or • have been a member of the Board of Managing Directors for at least 15 years.

The pension consists of 30% of the latest agreed annual basic salary after the first term of appointment, 40% after the second and 60% of the latest agreed annual basic salary after the third term of appointment. The pensions are reduced in line with the statutory provisions on company pensions if members of the Board of Managing Directors leave the Board before their 62nd birthday. Vesting of pension rights is also essentially based on the statutory provisions on company pensions. Instead of their pension, members of the Board of Managing Directors will continue to receive their pro-rated basic salary for six months as a form of transitional pay if they leave the board after celebrating their 62nd birthday or because they are permanently unable to work any longer4). If members of the Board of Managing Directors receive a pension before their 62nd birthday without being unable to work, the pension will be reduced to reflect the payments starting earlier. Half of any income received from other activities will be set off against any pension rights up to this age. Pension payments to members of the Board of Managing Directors are raised by one percent p.a. from when they are first paid out. Under certain circum- stances an increase in excess of this level will be considered, but there is no right to any such increase.

3) Prior to joining the Board, Mr Strutz participated in the 2002 and 2003 LTPs with 1,200 shares and 1,000 shares respectively and accordingly received payments from these of €96,000 (2002 LTP) and €100,000 (2003 LTP). Mr Teller did not become a member of the Board of Managing Directors until 2003 and, prior to joining the Board, did not participate in the 2002 LTP. Mr Patig participated in neither the 2002 LTP nor in the 2003 LTP. 4) Mr Knobloch receives this transitional pay in view of his many years on the Board of Managing Directors of Eurohypo AG, even if he leaves the Board immediately after his first term of appointment. 20 MANAGEMENT REPORT / CORPORATE GOVERNANCE REPORT

The following table lists the pension rights of the members of the Board of Managing Directors as at the end of the year under review:

Pension rights Annual amount when pension is first paid out in € (as of 31.12.2006)5) Klaus-Peter Müller 456,000 Martin Blessing 192,000 Wolfgang Hartmann 192,000 Dr. Achim Kassow 144,000 Bernd Knobloch 144,000 Klaus M. Patig 288,000 Michael Reuther 144,000 Dr. Eric Strutz 144,000 Nicholas Teller 192,000

The surviving dependants’ pension for a spouse amounts to 662⁄3% of the pension entitlement of the member of the Board of Managing Directors. If no widow’s pension is paid, minors or children still in full-time education are entitled to an orphan’s pension amounting in each case to 25% of the pension entitlement of the member of the Board of Managing Directors, but no higher in total than the widow’s pension. The assets backing these pension obligations have been transferred under a contractual trust arrangement to Commerzbank Pension-Trust e.V. The pension provisions still remaining as at December 31, 2006 for defined benefit liabilities amounted to €1.0m for members of the Board of Managing Directors. In the year under review, provisions for active members of the Board of Managing Directors were formed in the amount of €1.6m, and €4.9m were transferred to Commerz- bank Pension-Trust e.V. Defined benefit obligations for active members of the Board of Managing Directors amounted in total as at December 31, 2006 to €28.6m.

Change of Control In the event that a shareholder takes over at least a majority of the voting rights represented at the Annual General Meeting, or that an affiliation agreement is signed with Commerzbank as a dependent entity, or in the event of Commerz- bank being merged or taken over (Change of Control), all members of the Board of Managing Directors are entitled to terminate their contracts of employment. If members of the Board of Managing Directors take advantage of this right to terminate their contract or if, in connection with the Change of Control, their membership of the board ends for other reasons, they are entitled to compensatory pay for the remainder of their term of appointment in the amount of 75% of their total average pay (basic salary and variable bonus) and to a severance

5) The amounts take into account the current term of appointment of the individual members of the Board of Managing Directors and furthermore assume that, barring inability to work, no pension will be paid before a member’s 62nd birthday and that the member will remain on the Board until the pension is due. REMUNERATION REPORT 21

payment in the amount of total average annual pay for two years. Depending on the age and length of service on the Board, this severance payment increases to three6) to four7) times total annual pay. Taken together, compensatory pay and severance payment may not exceed total average pay for five years or – if such members of the Board of Managing Directors are already over 60 at the time their activity on the Board ceases – for the period up to such members’ 65th birthdays. In respect of retirement benefits and long-term performance plans, members of the Board of Managing Directors will essentially be treated as if they had remained as members of the Board of Managing Directors until the end of their latest term of appointment. There is no entitlement to severance pay if members of the Board of Managing Directors receive money in connection with the Change of Control from the majority shareholder, the controlling company or the other legal entity in the event of a merger or acquisition.

Other regulations The contracts of employment of members of the Board of Managing Directors always end automatically with the end of their term of appointment. In derogation of this, those members who joined Commerzbank’s Board of Managing Directors before 2002 will, in the event of a premature end to their appointments (unless for good cause), be released from the remaining term of their contract of employment and will continue to receive their basic salary for the remainder of their term of office.8) If a contract of employment is not extended at the end of a term of office, without there being good cause, members of the Board of Managing Directors so affected will continue to receive their basic salary for a further six months. Members of the Board of Managing Directors who were appointed to the Board before 20049) receive their basic salary in such cases for a further twelve months from the end of their second term of appointment. This continuation of salary ceases if members of the Board receive payments under the regulations set out above in the section headed Pensions. Certain amounts received from a pension to which Mr Teller is entitled for his work in the Commerzbank Group before joining the Board of Managing Directors are set off against his pension. Commerzbank signed an agreement with Mr Patig, who left the Board at the end of January 2007. Under this agreement his contract of employment as a member of the Board of Managing Directors expiring in March 2008 was terminated as at the date of his departure. In terms of remuneration, Mr Patig will effectively be treated as if he had remained on the Board until March 2008; he will receive a lump sum in lieu of his variable bonus for the period from January 2007 until March 2008 in the amount of €1,823 thousand, which will be paid together with his bonus for 2006. No members of the Board of Managing Directors received payments or promises of payment from third parties in the course of the last financial year in respect of their work as a member of the Board of Managing Directors.

6) Mr Hartmann and Mr Knobloch 7) Mr Müller 8) Messrs Müller, Blessing, Hartmann and Patig 9) Messrs Müller, Blessing, Hartmann, Patig, Dr. Strutz and Teller 22 MANAGEMENT REPORT / CORPORATE GOVERNANCE REPORT

Summary The following table shows the cash remuneration paid to individual members of the Board of Managing Directors for 2006 and, for comparison, for 2005:

Cash remuneration Other10) Total Amounts Basic salary Variable Payment for the in €1,000 remuneration11) LTPs 2002 and 2003 Klaus-Peter Müller 2006 760 2,736 900 80 4,476 2005 760 2,280 0 86 3,126 Martin Blessing 2006 480 1,695 450 77 2,702 2005 480 1,500 0 69 2,049 Wolfgang Hartmann 2006 480 1,350 450 109 2,389 2005 480 1,500 0 134 2,114 Dr. Achim Kassow 2006 480 1,600 – 44 2,124 2005 480 1,500 – 123 2,103 Bernd Knobloch12) 2006 360 1,125 – 35 1,520 2005 –– ––– Klaus M. Patig 2006 480 1,500 0 65 2,045 2005 480 1,500 0 60 2,040 Michael Reuther12) 2006 120 375 – 2,885 3,380 2005 –– ––– Dr. Eric Strutz 2006 480 1,650 196 42 2,368 2005 480 1,500 0 42 2,022 Nicholas Teller 2006 480 1,800 250 78 2,608 2005 480 1,500 0 58 2,038 Total 2006 4,120 13,831 2,246 3,415 23,612 200513) 3,640 11,280 0 572 15,492

Loans to members of the Board of Managing Directors Members of the Board of Managing Directors have been granted cash advances and loans with terms ranging from on demand up to a due date in 2030 and at interest rates ranging between 3.0% and 12.0%. Collateral security is provided on a normal market scale, if necessary through mortgages and pledging of security holdings. The overall figure (€3,251,000) includes rental guarantees of €23,000 provided for two members without a commission fee being charged; this is in line with the Bank’s general terms and conditions for members of staff. As at the reporting date, the aggregate amount of advances and loans granted and contingent liabilities was €3,251,000; in the previous year it was €3,591,000.

10) ”Other” includes payment in kind in the year under review (€546,000) and, for Mr Reuther, an amount of €2,869,000 paid to him as special remuneration for payments he had to forego from his previous employer arising from restricted equity units and bonuses when he joined the Board. 11) Payable in the following year subject to approval of the annual financial statements less remuneration already received for performing board functions at consolidated companies (€543,000; previous year: €483,000). 12) Pro rata for the period since being appointed. 13) The totals for 2005 do not include amounts for the member of the Board of Managing Directors Andreas de Maizière who left the Board in 2005 (pro rata fixed pay of €280,000 and payments in kind of €79,000). REMUNERATION REPORT 23

Supervisory Board

Principles of the remuneration system and remuneration for 2006 The remuneration of the Supervisory Board is regulated in Art. 15 of the Articles of Association; the current version was approved by a resolution of the Annual General Meeting on May 30, 2003. This gives members of the Supervisory Board basic remuneration for each financial year, in addition to compensation for out- of-pocket expenses, as follows:

1. fixed remuneration of €20,000 and 2. a variable bonus of €2,000 for each €0.05 of dividend in excess of a dividend of €0.10 per share distributed to shareholders for the previous financial year.

The Chairman receives triple and the Deputy Chairman double the afore- mentioned basic remuneration. For membership of a committee of the Super- visory Board meeting at least twice in any calendar year, the committee chairman receives additional remuneration in the amount of the basic remuneration and each committee member in the amount of half the basic remuneration; this additional remuneration is paid for no more than three committee appointments. In addition each member of the Supervisory Board receives an attendance fee of €1,500 for attending a meeting of the Supervisory Board or one of its committees. The fixed remuneration and attendance fees are payable at the end of each financial year and the variable bonus after the Annual General Meeting that passes a resolution approving the actions of the Supervisory Board for the financial year concerned. The value-added tax payable on the remuneration is refunded by the Bank. Under this system, the members of our Supervisory Board will receive remuneration of €1,661,000 for the 2006 financial year (previous year: €1,393,00), provided the Annual General Meeting of Commerzbank AG resolves that a dividend of €0.75 be paid per no par-value share. Altogether €235,000 was paid in attendance fees for participation in the meetings of the Supervisory Board and its four committees (Presiding, Audit, Risk and Social Welfare Committees) which met in the year under review. The turnover tax of €316,000 to be paid on the overall remuneration of the members of the Supervisory Board was refunded by Commerzbank Aktiengesellschaft. Members of the Supervisory Board once again provided no advisory, intermediary or other personal services in 2006. Accordingly, no additional remuneration was paid. 24 MANAGEMENT REPORT / CORPORATE GOVERNANCE REPORT

The remuneration and the attendance fees are divided between the individual members of the Supervisory Board as follows:

2006 Basic Committee Total remuneration remuneration Supervisory Board members in €1,000 in €1,000 in €1,000 Dr. h.c. Martin Kohlhaussen 138.0 92.0 230.0 Uwe Tschäge 92.0 23.0 115.0 Hans-Hermann Altenschmidt 46.0 23.0 69.0 Dott. Sergio Balbinot 46.0 23.0 69.0 Herbert Bludau-Hoffmann 46.0 – 46.0 Astrid Evers 46.0 – 46.0 Uwe Foullong 46.0 – 46.0 Daniel Hampel 46.0 – 46.0 Dr.-Ing. Otto Happel 46.0 23.0 69.0 Dr. jur. Heiner Hasford 46.0 23.0 69.0 Sonja Kasischke 46.0 – 46.0 Wolfgang Kirsch 46.0 23.0 69.0 Werner Malkhoff 46.0 23.0 69.0 Prof. h.c. (CHN) Dr. rer. oec. Ulrich Middelmann 34.5 – 34.5 (since April 1, 2006) Klaus Müller-Gebel 46.0 69.0 115.0 Dr. Sabine Reiner 46.0 – 46.0 Dr. Erhard Schipporeit 46.0 – 46.0 Dr.-Ing. Ekkehard D. Schulz 11.5 – 11.5 (until March 31, 2006) Prof. Dr. Jürgen F. Strube 46.0 23.0 69.0 Dr. Klaus Sturany 46.0 – 46.0 Dr.-Ing. E.h. Heinrich Weiss 46.0 23.0 69.0 Total 2006 1,058.0 368.0 1,426.0 Total 2005 828.0 288.0 1,116.0

Loans to members of the Supervisory Board Members of the Supervisory Board have been granted loans with terms ranging from on demand up to a due date in 2031 and at interest rates ranging between 4.7% and 6.7%. In line with market conditions, some loans were granted without collateral security, against mortgages or against the assignment of credit balances and life insurance policies. As at the reporting date, the aggregate amount of advances, loans and contingent liabilities granted to members of the Supervisory Board was €1,504,000; in the previous year it was €1,601,000. Other details

D&O liability insurance There is a D&O liability insurance policy for members of the Board of Managing Directors and the Supervisory Board. The excess payable by members of the Supervisory Board amounts to one year’s fixed remuneration and for members of the Board of Managing Directors 25% of one year’s fixed remuneration. REMUNERATION REPORT 25

Purchase and disposal of the Company’s shares Pursuant to Art. 15 a of the German Securities Trading Act, transactions by executives of listed companies and their families have to be disclosed and published. Accordingly, purchases and disposals of shares and financial instruments related to Commerzbank to the value of €5,000 and upwards must be reported immediately and for the duration of one month. The Bank relates this reporting requirement to the Board of Managing Directors and the Supervisory Board, in line with the recommendations in the BaFin Guide for Issuers. Members of the Commerzbank’s Board of Managing Directors and Super- visory Board have reported the following dealings (director’s dealings) in Commerzbank shares or derivatives thereon in 2006:14)

Date Name Function Purchase/ Number Price per Amount Disposal of shares share in € in € 08.03.2006 Daniel Hampel Member of Supervisory Board P 120 28.56 3,427.20 04.05.2006 Martin Blessing Board of Managing Directors P 5,000 30.59 152,950.00 18.05.2006 Dr. Achim Kassow Board of Managing Directors P 3,500 29.15 102,025.00 18.05.2006 Dr. h.c. Martin Kohlhaussen Chairman of Supervisory Board D 4,000 28.57 114,280.00 22.05.2006 Dr. Eric Strutz Board of Managing Directors P 3,496 28.79 4 28.78 100,764.96 23.05.2006 Hans-Hermann Altenschmidt Member of Supervisory Board P 200 28.71 5,742.00 23.05.2006 Daniel Hampel Member of Supervisory Board P 300 28.63 8,589.00 30.05.2006 Bernd Knobloch Board of Managing Directors P 1,068 29.17 1,432 29.18 72,939.32 15.06.2006 Klaus-Peter Müller15) Board of Managing Directors P 16,953 26.55 450,102.15 15.06.2006 Martin Blessing15) Board of Managing Directors P 8,477 26.55 225,064.35 15.06.2006 Wolfgang Hartmann15) Board of Managing Directors P 8,477 26.55 225,064.35 15.06.2006 Dr. Eric Strutz15) Board of Managing Directors P 1,884 26.55 50,020.20 15.06.2006 Nicholas Teller15) Board of Managing Directors P 4,709 26.55 125,023.95 09.08.2006 Klaus-Peter Müller Board of Managing Directors P 3,000 26.30 78,900.00 09.08.2006 Dr. Eric Strutz Board of Managing Directors P 2,000 26.17 52,340.00 09.08.2006 Dr. Achim Kassow Board of Managing Directors P 2,000 26.24 52,480.00 09.08.2006 Martin Blessing Board of Managing Directors P 4,000 26.00 104,000.00 09.08.2006 Nicholas Teller Board of Managing Directors P 2,000 26.21 52,420.00

All told, the Board of Managing Directors and the Supervisory Board did not own more than 1% of the issued shares and option rights of Commerzbank AG on December 31, 2006.

14) The directors’ dealings – with the exception of share purchases that did not need to be reported in connection with payments made under the 2002 and 2003 LTPs (see footnote 15 below) – were published in the year under review on the Commerzbank website under Directors’ Dealings. 15) Reinvestment of 50% of the gross amounts paid out as a result of participating in the 2002 and 2003 LTPs. 26 MANAGEMENT REPORT

Information pursuant to Arts. 289 (4) and 315 (4) of the German Commercial Code (HGB)

1. Structure of subscribed capital Commerzbank has issued only ordinary shares, the rights and duties for which arise from legal requirements, in particular Arts. 12, 53a et seq., 118 et seq. and 186 of the German Stock Corporation Act. The subscribed capital of the company totalled €1,708,638,206.60 at the end of the financial year. It is divided into 657,168,541 no-par- value shares. The shares are issued in the form of bearer shares.

2. Appointment and replacement of the members of the Board of Managing Directors and amendments to the Articles of Association The members of the Board of Managing Directors are appointed and replaced by the Supervisory Board pursuant to Art. 84 of the German Stock Corporation Act and Art. 6 (2) of the Articles of Association. If there is a vacancy on the Board of Managing Direc- tors for a member required by law or by the Articles of Association and the Supervisory Board has not appointed a replacement, in urgent cases one will be appointed by a court under Art. 85 of the German Stock Corporation Act. Each amendment to the Articles of Association requires a resolution of the Annual General Meeting under Art. 179 (1) of the German Stock Corporation Act. Unless the law mandates a larger majority, a simple majority of the represented share capital is adequate (Art. 19 (3) (2) of the Articles of Association). The authority to amend the Articles of Association, which only affect the version in force, has been transferred to the Supervisory Board under Art. 10 (3) of the Articles of Association in compliance with Art. 179 (1) (2) of the German Stock Corporation Act.

3. Powers of the Board of Managing Directors According to the Annual General Meeting resolutions from May 17, 2006, Commerz- bank is authorized to acquire its own shares in the amount of up to 5% of the share capital under Art. 71 (1) (7) of the German Stock Corporation Act and in the amount of up to 10% according to Art. 71 (1) (8) of the German Stock Corporation Act. These authorizations expire on October 31, 2007. The Board of Managing Directors, with the approval of the Supervisory Board, is authorized to increase the share capital by issuing new shares under Art. 4 of the Articles of Association (authorized capital) as follows:

a. Up to €225,000,000.00 (authorized capital 2004/I) by April 30, 2009 according to Art. 4 (3) of the Articles of Association b. To issue shares for employees in the amount of up to €19,768,703.60 by April 30, 2007 according to Art. 4 (4) of the Articles of Association and in the amount of up to €12,000,000.00 (authorized capital 2006/III) by April 30, 2011 according to Art. 4 (9) c. In the amount of up to €225,000,000.00 (authorized capital 2004/II) by April 30, 2009 according to Art. 4 (6) of the Articles of Association and in the amount of up to €200,000,000.00 (authorized capital 2006/II) according to Art. 4 (8) of the Articles of Association, whereby subscription rights may be excluded for contributions in kind upon acquisition of companies or holdings in companies, and MANAGEMENT REPORT 27

d. In the amount of up to €170,000,000.00 (authorized capital 2006/I) by April 30, 2011 according to Art. 4 (7) of the Articles of Association, whereby subscription rights may be excluded if the issue price of the new shares is not materially lower than that of already listed shares offering the same conditions (Art. 186 (3) (4) of the German Stock Corporation Act).

When utilizing authorized capital, subscription rights must always be granted to shareholders; with the exception of the cases listed under a-d, subscription rights can only be excluded for residual amounts and to protect the rights of holders of conversion or option rights. Moreover, the Annual General Meetings on May 30, 2003 and on May 20, 2005 have given the Board of Managing Directors the authority to issue convertible bonds or bonds with warrants or profit-sharing certificates (with and without conversion or option rights) upon exclusion of subscription rights. Authorized capital (Bedingtes Kapital) in the amount of up to €403,000,000.00 is available for this purpose according to Art. 4 (5) of the Articles of Association.

4. Key agreements in the event of a Change of Control as a result of a takeover bid In the event of a Change of Control at Commerzbank, an extraordinary right of termination has been negotiated by Commerzbank with several contract partners in favour of those contract parties as part of ISDA master agreements. In general, the right of termination is conditional upon Commerzbank‘s creditworthiness worsening considerably. In the event of this type of termination, the individual contracts concluded under these master agreements would have to be settled at fair value, which can be determined on every stock exchange trading day. The possibility cannot however be excluded that, if an individual customer with an especially large volume of business terminates a contract, Commerz- bank’s net assets, financial position and operating results could nevertheless be heavily impacted due to the Bank’s possible payment obligations. A master agreement with a cooperation partner also contains a reciprocal right of termination for all cooperative efforts concluded as part of this master agreement. Such a termination would have a considerable impact on the net assets, financial position and operating results of the Bank.

5. Golden/tin parachutes In the event of a Change of Control at Commerzbank, all members of the Board of Man- aging Directors have the right to terminate their employment contracts. If members of the Board of Managing Directors make use of this right of termination or end their Board activities for other reasons in connection with the Change of Control, they are entitled to a severance payment in the amount of the capitalized average total annual payments for between two and five years. With regard to retirement benefits and long- term performance plans, members of the Board of Managing Directors are essentially treated as if they had remained on the Board of Managing Directors until the end of their most recent term of office. There is no entitlement to a severance payment to the extent a member of the Board of Managing Directors receives payments from the majority shareholder, from the controlling company or from the other legal entity in the event of integration or merger in connection with the Change of Control. In a few exceptional cases, individual managers in Germany and abroad have received an assurance of their payments for a transitional period effective from the start of their activities for the Bank in the event that they leave the bank in connection with a Change of Control at Commerzbank. ‡ free current account ‡

”While you’re still annoyed about banking charges, we’ve simply got rid of them! Since December 2006, Commerzbank has had the 0 euros account.”

Katrin Taege was the product manager working on developing and introducing the new account and is pleased with the positive response.

Our customers’ interests are our first priority. Market research and our colleagues in the branches confirm that the free current account is highly attractive, both for our customers and for the bank. One essential feature distinguishes our offer from those of competitors: there

are no catches to our account – and from a bank with a demonstrably high level of quality in terms of advice and service.

Katrin Taege Product Manager, Private Customers.

30 MANAGEMENT REPORT

Retail Banking and Asset Management

The Private and Business Customers and Asset Management segments are grouped under the Retail Banking and Asset Management division.

Private and Business Customers segment

The Private and Business Customers segment is made up of the Private and Business Customers, Private Banking and Retail Credit departments as well as comdirect bank AG. We report an operating loss of €58m and an operating return on equity of –2.5% in this segment, resulting from a one-off expense in risk provisions. The operating profit would have been slightly higher than last year’s figure without this exceptional cost of €293m. The cost/income ratio remained practically unchanged at 78.1%. We want to reach an operating return on equity of at least 18% in this segment by 2010. To achieve this goal, we launched the ”Future through Growth” campaign in autumn 2006. This aims to acquire a total of around 800,000 new retail customers in the branch business and at comdirect bank by 2009.

Private and Business Customers department Private and Our private and business customer activities underwent further expansion. The Business Customers increase in sales performance was the result of strong product sales and across- the-board improvements in efficiency coupled with a clear growth strategy. 2006 Equity tied up (€ m) 2,320 Stated goal: growth Operating return The following measures are the foundation of our ”Future through Growth” ini- on equity –2.5% tiative, which is designed to meet our claim of being the best bank in Germany Cost/income ratio in for private and business customers: operating business 78.1% • strengthening our sales network through additional personnel, extensive training programmes and performance-based compensation models, • a new market presence, • highly attractive products to gain customers.

In addition, we will further decrease the administrative load in our branch network so as to free up our advisors to focus more on serving customers and providing expert advice.

Boosting sales power In 2007 we will further strengthen our branch system with 500 new positions. Extensive training programmes ensure that our customer advisory services are highly professional. We set concrete growth targets with our employees. A newly developed advisory system will help get the best results for the most efficient use of time. Modern compensation models let our employees participate in the success our growth strategy brings. RETAIL BANKING AND ASSET MANAGEMENT 31

New market presence Group companies and Our new market presence will give Commerzbank retail banking a clear profile. equity holdings in the A stronger advertising presence will convey the core message that we have Private and Business initiative and vision: We think about our customers before they think about us, Customers segment we take forward-looking action and we get things done. We offer our customers comdirect bank AG tailored services and sustainable investment and retirement saving strategies.

Our new market presence includes: Quickborn 79.8%2)

• a clear pledge of performance for our customers, Commerz Service Gesellschaft für Kundenbetreuung mbH • an advertising campaign that will draw attention to Commerzbank through a Quickborn 100.0% strong presence on television and in print media, • attractive products that clearly distinguish us from our competition. COMMERZ PARTNER Beratungs- gesellschaft für Vorsorge- und Finanzprodukte mbH Sophisticated private and business customers no longer want to be left out Frankfurt am Main 50.0% when it comes to low-priced standard products and services in the future. We want to reach this clientele by offering competitive, solid and low-cost basic Commerzbank products. International S.A. 2) The new market presence was launched in October along with the attractive Luxembourg 100.0%

TopZins investment, a product that brought us a lot of new customers. We have Commerzbank International been offering our private customers free current accounts since December 2006. Trust (Singapore) Ltd. This is not a promotional product with hidden costs but a fully-fledged account Singapore 100.0%1) with all of the standard market services. We want to set ourselves well ahead Commerzbank of the market and tap into additional potential for growth by offering these free (Switzerland) Ltd current accounts in combination with a starting bonus. Zurich 100.0%2)

Card offering expanded 1) The Parent Bank holds some of the interest indirectly; Since September 2006 Commerzbank has been the only major German bank 2) the Parent Bank holds the offering its customers the exclusive American Express Gold and Platinum cards. interest indirectly. Commerzbank and American Express have negotiated a sales partnership in the premium credit-card segment. American Express credit cards are one of the most popular non-cash payment methods and can be used with millions of sales partners around the world. With these new cards, the Bank is enhancing its portfolio for sophisticated, brand-conscious private and business customers.

Strong increase in the number of business customers Since the beginning of 2005 Commerzbank has been able to increase the number of business customers from 410,000 to 460,000. This customer group includes professional people, the self-employed, businessmen and owners of companies with up to €2.5m in annual sales. Our market share in this segment is already more than 10%. The key to our success is providing expert and comprehensive individual advisory services and offering the most up-to-date products. In the summer of 2006 we introduced our new business account with autopilot. The unique feature is that business account surpluses are automatically transferred to a call deposit account which pays interest. It is up to the customer to decide the amount at which the ”autopilot” is activated. If the account balance moves into the red, money is automatically transferred from the call deposit account back to the business account. This lets the customer stay liquid at all times and profit from the interest earned on the call deposit account. 32 MANAGEMENT REPORT

Business model for bancassurance and retirement savings successful Following the introduction of a new business model in 2005, we focused on more firmly establishing needs-based retirement advisory services in our branches. In addition to fund-based saving plans for pension planning, pension insurance products were a particular focus of customer needs and demand. Compared with the previous year, sales of insurance products rose by 46% in our branch business. A large percentage of this positive result was accounted for by state-subsidized products, which made up a total of 45% of the total transactions brokered in 2006. The specialists at Commerz Partner Beratungsgesellschaft für Vorsorge- und Finanzprodukte mbH were able to increase their business overall by 18%. Growth in company pension business was more than 30%; this made up around 42% of the new business our specialists brokered.

The branch of the future: a model for success Commerzbank, as a branch bank, has to have a competitive branch network effectively oriented around its customers’ needs. Our ”Branch of the Future” model which we successfully introduced in 2003 was taken to the next step in 2006, and modern sales units with efficient cost structures were created to focus on sales and advisory services. In these branches our customers not only receive highly professional advisory services, they also have access to flexible and modern banking services 24 hours a day. Until now we have concentrated on smaller sites in the ”Branch of the Future” initiative. This investment has paid off. Through a number of process changes and optimizations we have successfully and sustainably lowered costs so that the branches will run profitably and can be maintained over the long run. They have also been well-received by our customers. More than 100 Commerzbank branches have now been converted. In 2007, we will again invest heavily in our retail customer business. We will take the factors that have been critical to the success of our business model and apply them to our larger branches for the first time.

Outlook 2007 We offer our customers first-class products and advisory services for asset accu- mulation, investments and real-estate financing in our nationwide branch network and over the internet. We have laid the structural foundation for our future success and the continued expansion in retail banking with the ”Future through Growth” initiative. In 2007 we will continue to pursue this initiative as planned.

Private Banking department We continued on our growth course in Private Banking in 2006. We are still ranked among the top three in serving wealthy private customers in Germany. The assets under management again rose by 12%, to €25.3bn. Roughly 22,400 customers – a figure 6% more than the previous year – put their trust in the expertise of our approximately 600 employees when it came to looking after their assets. With 37 private banking offices, Commerzbank has the strongest branch network in Germany in this segment. Internationally, we have increased our presence to five locations with a new centre of competence in Vienna. RETAIL BANKING AND ASSET MANAGEMENT 33

Our service philosophy In the Private Banking segment we can boast comprehensive expertise for the integrated management of large portfolios of assets. This expertise starts with securities management and asset management, extends through the management of foundations and estate planning, closed-end funds, real-estate management and financing and reaches all the way to special services such as private wealth management and corporate bankers. Thanks to our close ties to the asset-management skills of cominvest and our open architecture, advisors have access to a large number of investment options and can offer our customers customized solutions.

Optimized range of products gives new stimulus for growth More than one quarter of the assets under management in Private Banking are managed individually. Last year, customer funds in asset management rose by a good 20%. One of the reasons for this successful development was very good performance: as in 2005, asset management was at the top of national and international rankings. Additional customer interest, for example, was sparked by the value-guarantee strategies known as ”Protect Asset Management”, which allowed investors to benefit from rising markets and at the same time hedge the price risk using an ”airbag” option. The Bank’s earnings from a strong asset- management business are more stable than those from managing securities portfolios, thus making it a focus of ours in the future. We were also able to set new standards in securities management with product innovations such as the 2006 Insider Certificate. The certificate follows the highest-volume directors’ dealings in the shares of DAX companies and offers investors the opportunity to profit from the deep market and company knowledge of company managers. If the insider index that forms the basis of the certificate is calculated back historically to 2002, when the Bundesbank and German Financial Supervisory Authority disclosure requirements took effect, we arrive at an average return of around 32% p.a. compared with around 18% p.a. for a pure DAX30 investment with almost the same risk. Finally, we rounded out our range of products for top customers with the American Express Platinum and Centurion credit cards.

Commitment to research and education As part of our efforts to meet our social responsibilities in 2006 we were the primary sponsor behind the first research institute for Private Banking in Germany, at the private WHU Otto Beisheim School of Management. We not only wanted to explore private banking issues from an academic standpoint, we also think there are interesting possibilities for providing further training to our employees and for recruiting.

Outlook 2007 Our overarching goal for 2007 is to increase the number of customers we have and continue expanding the range of services we offer. We will continue to rely on combining the exclusive and personal service offered on site by a private bank with the effective and creative products of a major international bank. We offer our customers the best of both worlds. 34 MANAGEMENT REPORT

Retail Credit department Following the takeover of Eurohypo, the Bank is one of the biggest players for private and business customers in the credit market. We have a portfolio of more than €64bn, with home loans making up more than €55bn of this. The new Retail Credit department was created with the goal of optimizing the interaction of the areas of acquisition, processing and portfolio management. Most of the administrative activities that relate to loans and the processing capacities needed for them are grouped together here.

Optimization for customers and bank The reorganization was focused in several directions: we want to offer our customers highly attractive products and particularly fast processing of loans. Capacity is freed up to focus on customers at the branches by clearly separating sales and administration. In the future, responsibility for credit processing will be taken on by five credit-processing centres specialized in specific products. We will generate more stable earnings over time by optimizing risk and capital management. Finally, the size and complexity of the loan book alone make centralized portfolio management in the retail credit business of vital importance.

Outlook 2007 In 2006 we laid key cornerstones for expanding the new department. Our goal is clear, decisions about systems, sites and managers have been made, and the employees understand what their future activities will be. Starting in the autumn of 2007 the growth initiatives in the retail business will be accompanied by efficient, high-quality credit processing on a new technical platform.

Record results from comdirect bank The 2006 financial year was by far the most successful year in the history of comdirect bank. With €85.6m before tax, a new record was reached in earnings that exceeded the previous year’s figure by more than 60%. The Board of Managing Directors and Supervisory Board will propose distributing a dividend of €1.40 per share (previous year: €0.24) to the Annual General Meeting in Hamburg on May 3, 2007. This figure includes a special dividend of €1.00 per share. Most of the objectives of the ”comvalue” growth programme have been achieved by comdirect one year earlier than scheduled. Since the introduction of the programme, the number of customers has increased by around 150,000 or 30% to more than 800,000; the number of current accounts has risen by more than 100,000 to over 260,000. Growth spanned all of the different fields of comdirect bank: brokerage, banking and advisory services. In brokerage, the number of securities orders submitted increased – in part due to a successful fund business – by around 30% to 11.0 million. In banking, the volume of deposits at year-end 2006 was €4.6bn, 70% above the previous year. Overall, customer assets under management grew by around €3.5bn to €16.4bn. The subsidiary comdirect private finance (specializing in advisory services) more than doubled its customer base, increased the number of offices from 13 to 19 and reached profitability as planned. RETAIL BANKING AND ASSET MANAGEMENT 35

New products and services The market and product drive that was part of ”comvalue” was pursued at a high level throughout 2006. A number of new functions were introduced by comdirect, including the innovative combined ”One Cancels Other” order in the brokerage area. The range of both securities savings plans and funds on offer was further expanded. The most important product by far in the banking segment was Tagesgeld PLUS, introduced in November 2006 and already being used by more than 66,840 customers by the end of the year. In addition, currency investment accounts and instalment loans with flexible terms were introduced.

Strategic alignment comdirect bank has once again set much higher goals for itself for the next three years: by the end of 2009, the aim is to increase the customer base to more than 1.3 million and the number of current accounts by around 200,000. We want to win more than a half a million customers with the new Tagesgeld PLUS product. For more and more sophisticated private investors, comdirect with its superior product range will be the preferred direct bank.

Asset Management segment

In 2006 Asset Management was able to raise the assets it manages to €112bn Asset Management as a result of the positive developments on the capital markets and improved product performance. Despite a propensity for risk that remains low among our 2006 domestic customers, we increased the percentage of higher margin products in Equity tied up (€ m) 567 our overall business and hence further improved operating profitability. Operating return Asset Management’s operating profit improved from €120m to €139m. on equity 24.5% A negative effect on profit came from a further increase in expenses arising from Cost/income ratio in the annual recalculation of employee profit-sharing schemes at Jupiter. The operating business 81.0% operating return on equity was 24.5% and the cost/income ratio rose slightly to 81.0%. This business will concentrate more heavily on the core markets and skills of cominvest in future. We are exploring strategic options in international asset management. The real-estate asset-management operation Commerz Grundbesitz Group has already been shifted to Commercial Real Estate as part of the move to merge all group real-estate activities at the beginning of 2007.

German Asset Management department German Asset Management groups together the asset-management activities for retail and institutional customers in German-speaking countries. In addition to cominvest Asset Management GmbH, cominvest Asset Management S.A. and cominvest Asset Management Ltd., it includes private asset management, Münchner Kapitalanlage AG (MK), MK Luxinvest S.A. and the European Bank for Fund Services GmbH (ebase). 36 MANAGEMENT REPORT

A new growth strategy for cominvest The goal of the Alpha growth programme launched in 2006 is to increase the assets managed by cominvest from €52bn as of the end of 2005 to €100bn by 2011. The implementation of this programme has already led to a significant increase in assets under management in 2006 by 12% to €58bn; the targets for the first year were thus met. Overall, cominvest generated net new money of over €2.5bn and is once again on a growth course. Developments in the institutional business were particularly satisfying, and a large number of renowned advisory and discretionary clients were acquired. In the private client business, cominvest increased gross sales but could not fully compensate for the considerably higher outflow of funds over the last few years.

Clear outperformance Of particular note is the excellent performance in portfolio management, which outperformed the benchmark across all asset categories by more than 1%. More than 70% of the funds for retail and institutional customers were above their respective benchmarks. In addition, cominvest received numerous awards for its products in 2006: for example Adireth was rated the best tax-optimized bond fund by Finanztest magazine. The firm also received 14 prizes for its retail funds at the Euro Funds Awards, and was awarded the title ”Best Improver of the Year” for its great increases in product quality.

Consistent reduction in complexity With the introduction of the cominvest brand for both retail and institutional customers, the company has had a uniform market presence since autumn 2006. Measures undertaken in the back office represented another focus for reducing complexity. Of particular note is the optimization of fund administration that is already underway through standardizing processing systems and consolidating sites. Over the course of this systems standardization, the MK investment company acquired in 2006 will be integrated into cominvest’s new back-office platform.

International Asset Management department Jupiter Group continues on course for growth Our English unit the Jupiter Group was able to once again increase growth of assets under management in 2006, reporting inflows of €7bn – higher even than the very good previous year. The retail funds again contributed the most to growth by far. However, growth was distributed across almost all of the activities of this premium provider. Success was particularly visible in hedge funds, in products for continental European distribution and in asset management for private clients. Jupiter was recognized for its excellent products with numerous prizes and awards. For the third time in a row, the company was named ”Global Group of the Year” by Investment Week magazine, making it the only company until now to achieve this feat. RETAIL BANKING AND ASSET MANAGEMENT 37

CCR group once again improves profitability Our French subsidiary Caisse Centrale de Réescompte also increased its assets under management. The largest contribution was made by equity funds managed using the value method and by total return funds. The business with index-oriented money market funds was adversely affected last year by falling credit spreads. Nevertheless, the CCR group was once again able to close the financial year on a good note as a result of the considerable expansion of innovative leveraged money-market funds and the positive results from the absolute return products.

Real Estate department The Commerz Grundbesitz Group has added the promising asset category of REITs to its business activities: in March 2006, we successfully brought our in- house French REIT CeGeREAL to the Paris stock exchange, thus becoming the first German real-estate company to issue a REIT. hausInvest europa: a market leader The hausInvest europa fund managed by Commerz Grundbesitz-Investment- gesellschaft (CGI) is one of the group’s open-ended property funds. This fund, which was created in 1972, is the largest open-ended property fund in Europe and had total assets of €8.18bn at the end of 2006. More than 300,000 investors currently hold units in this fund. hausInvest global moves into Japan CGI also manages hausInvest global, which invests worldwide. This fund has demonstrated our innovative strength on more than one occasion. hausInvest global was the first German fund to invest in Canada, Turkey and Sweden, all considered markets of the future. By purchasing a shopping centre in Tokyo at the end of 2006, the fund is now continuing its success story and is considered a pioneer in the up-and-coming real-estate markets in Asia.

Special real-estate funds continue on growth course Commerz Grundbesitz expanded its business volume of special real-estate funds for institutional investors in 2006. The company now manages six funds for institutional investors.

Group companies and equity holdings in the Asset Management segment

Commerz Grundbesitz- cominvest European Bank for Fund Caisse Centrale de gesellschaft mbH Asset Management GmbH Services GmbH (ebase) Réescompte, S.A. Wiesbaden 100.0% Frankfurt am Main 100.0%2) Haar near Munich 100.0%2) Paris 99.3%2)

Capital Investment Trust cominvest cominvest Commerzbank Asset Corporation Asset Management Ltd. Asset Management S.A. Management Asia Ltd. Taipei 24.0%1) Dublin 100.0%2) Luxembourg 100.0%2) Singapore 100.0%2)

Commerzbank Europe Commerz International Capital Jupiter International Münchner Kapitalanlage (Ireland) Management (Japan) Ltd. Group plc Aktiengesellschaft Dublin 76.0%1) Tokyo 100.0%2) London 100.0%2) Munich 25.5%2)

1) The Parent Bank holds some of the interest indirectly; 2) the Parent Bank holds the interest indirectly.

‡ UNTERNEHMErPERSPEKTIVEn ‡

”Our initiative UnternehmerPerspektiven really demonstrates our claim to be the best bank for the Mittelstand.”

Michael J. Huvers is project leader for this initiative, which was launched at the beginning of 2006 by Corporate Banking.

”Like a seismograph, the UnternehmerPerspektiven (perspectives for entrepreneurs) track whatever concerns the Mittelstand today. The initiative has created a network for discussing concerns and exchanging

ideas. Scope for action is discussed with representatives of business, politics and trade associations, and we follow up on any steps that need to be taken. This is where Mittelstand companies find answers

to all the issues that concern them most.”

Michael J. Huvers Director Marketing/Communications, Corporate Banking.

40 MANAGEMENT REPORT

CORPORATE aND INVESTMENT BANKING

The Corporate and Investment Banking division handles business relationships with small, medium-sized and large corporate clients worldwide as well as customer-related market activities. It combines two major functions: The Corporate Bank or Mittelstand and the Investment Bank Corporates & Markets. The Mittel- stand function comprises the corporate banking business within Germany, the Financial Institutions banking department, as well as Central and Eastern Europe (including BRE Bank) and Asian regions. The Corporates & Markets function comprises the International Corporate Banking branches in Western Europe, North America and South Africa. Commercial real-estate financing and the activities of CommerzLeasing und Immobilien have been transferred to the Commercial Real Estate segment.

THE BEST MITTELSTAND BANK IN GERMANY

Mittelstand Our Mittelstand segment can look back on an exceptionally successful year in 2006. It increased operating profit by a good 20% and raised the operating return 2006 on equity to 27%, posting an outstanding performance and significantly exceed- Equity tied up (€ m) 3,003 ing targets and expectations. At the same time, it further shifted the earnings Operating return structure towards comparatively stable commission income. The brisk demand on equity 27.2% for capital-market solutions and tradable credit surrogates such as promissory Cost/income ratio in notes played a key role in this success. In addition, risk provisioning was operating business 53.6% reduced because of the steady financial recovery of the German Mittelstand. We were able to strengthen our market position. Thanks to innovative products designed specifically for small and mid-size companies, high-quality advisory services, quick lending decisions, and the successful integration of corporate banking and modern investment banking, we have created a systematic competitive advantage. This is why we can rightfully describe ourselves as the best bank in Germany for the Mittelstand. This has been confirmed by surveys such as the one conducted by the Arbeitsgemeinschaft Selbständiger Unter- nehmer, a group of independent contractors, in which Commerzbank leads all major competitors when measured against the criteria of Mittelstand focus, quality of service and competitive terms. From an organizational perspective, the scope of our Mittelstand segment was expanded in the past year to include Financial Institutions and the Asian region. This integration allows us to increase cooperation between the individual service units for SME customers, improve the development and control of international funds transfer products, and strengthen our position as an innovative financial services provider. By expanding the Asian business, we aim to support the rapid growth of our middle-market corporate customers in Asia.

Credit business is gradually picking up As the result of the surprisingly strong economic upswing in Germany and above-average increases in capital spending, the longstanding weak demand for credit began to pick up gradually during the past year. In our view, the bank loan CORPORATE AND INVESTMENT BANKING 41

continues to be a key financing instrument and an anchor product in the cus- Group companies and tomer relationship, and therefore we are trying to expand our share of the equity holdings in the Mittelstand lending business by means of a special initiative. Mittelstand segment Despite the strong competition from German and foreign providers, high market liquidity and the accompanying pressure on interest rates, we were able BRE Bank SA to maintain stable margins in the credit business. However, since the margins in Warsaw 70.2%1) many cases are still out of proportion to risk and cost, we are working hard to negotiate prices in line with the risks involved. Commerzbank (Eurasija) SAO

Moscow 100.0% ”Move to the Top” exceeds our own expectations

As part of our multi-year programme called ”Move to the Top” we have intro- Commerzbank duced additional improvements for our customers. Our lending procedures, (South East Asia) Ltd. for example, were revised and optimized in the ”end-to-end credit” (etec) pro- Singapore 100.0% gramme. We now reach lending decisions much faster than before. We are also Commerzbank Zrt. working hard to ensure quality advisory services. We have therefore set up an extensive employee development and training programme and have invested in Budapest 100.0%1) customer relationship management systems. We are one of the first banks to make an internet-based rating indicator Commerz (East Asia) Ltd. available to our customers and other interested parties. After a limited number Hong Kong 100.0% of data from the balance sheet and income statement have been entered, the rating indicator will generate an initial rating indication. In 2006 we gave a vol- P.T. Bank Finconesia untary commitment to explaining our customers’ individual ratings to them in detail. In addition, we offer various types of rating consultation. Jakarta 51.0%

One of our main concerns is to increase cooperation between Corporate 1) The Parent Bank holds the Banking and Investment Banking so that we will be better able to serve larger interest indirectly. Mittelstand companies and major corporations more efficiently from one source. In 2006 we continued our initiative to attract new customers to the Mittel- stand segment. This initiative has brought us more than 12,000 new corporate clients since 2004, which means that we have far exceeded our goal of 9,000 new customers by the end of 2006. We will continue to try to expand our Mittelstand market share in the future – by increasing the number of relationship managers in regions where we have had a below-average market share, among other things.

Successful entry into the factoring business In order to further improve our range of services, we have joined with GE Com- mercial Finance to establish CommerzFactoring. The new company focuses on customized solutions in receivables financing and purchases accounts recei- vable from companies by means of genuine factoring. With our entry into this sector, we intend to profit from a dynamic market that also promises high growth rates in the future. CommerzFactoring has got off to a good start and confirmed our confidence in this new company.

Approximately 400 promissory notes securitized After placing numerous promissory notes in lot sizes that SME customers can handle easily, we have securitized our first portfolio of nearly 400 promissory notes via the TSI platform. This placement is part of a solution that enables us to offer our customers attractive financing terms. The major part of the portfolio 42 MANAGEMENT REPORT

involves companies with annual sales ranging between €10m and €50m. We have now put together a new portfolio of promissory notes based on additional product innovations and a simplified price model.

Growth markets for mezzanine financing and equipment leasing With a volume of about €400m spread over more than 70 companies, we are among the market leaders in Germany in the area of mezzanine financing. Through our ”Mezzanine for the Mittelstand” initiative, our lendings totalled around €120m in 2006 and we took this amount onto our own books. We have a strong competitive position in the particular area of structured solutions that qualify as reported equity. As part of the CB Mezzanine Capital programme, we have now securitized a volume of around €200m. After a successful placement on the capital market, we have now launched a second tranche of this programme of profit-sharing certificates.

Trade Finance and Transaction Services We offer our services in the area of Trade Finance and Transaction Services to customers not only in Europe but also in Asia, North America and South Africa. This brings us much closer to our goal of becoming one of the leaders in the international transactions business. Since last year, our corporate customer portal called companyworld has been providing even more functions. The new treasury module allows our customers to optimize liquidity planning and control of payment flows on one electronic platform. Another module provides important market information. The companyworld portal is now available in nine languages and in sixteen countries. The number of users continues to grow: around 39,000 clients are now registered at www.companyworld.com. Our sales campaign called ”Expertise in International Banking”, which focuses on our services in the area of documentary credits and international payments, is also going very well. The Single European Payment Area project aimed at creating a uniform payment transactions landscape in Europe is of key importance here.

Rising demand for investment and risk management products The demand for interest-rate and currency derivatives continues to be strong. We feel that the ability to offer a broad range of hedging products is an important factor in the success of our Mittelstand segment. In order to seize major market opportunities more effectively and establish ourselves as a leading provider of investment and risk management products for corporate clients, we have launched a special growth programme. This includes such features as greater cooperation with cominvest, which is now focusing more specifically on the investment needs of mid-market companies and also making complex products available to SMEs.

Broad-based presence for serving public institutions Services to local government, municipally-owned enterprises and public-sector bodies are becoming more and more important for our Mittelstand segment. We are now represented by specialists who deal with customers at more than 120 locations. CORPORATE AND INVESTMENT BANKING 43

The demand for solutions for qualified debt management is especially strong and is increasing. Together with national and European partners, we are establishing special programmes in this area. We are also getting more involved in public-private partnerships (PPPs).

Launch of the initiative UnternehmerPerspektiven In order to highlight our expertise in the Mittelstand sector we launched the initiative UnternehmerPerspektiven (perspectives for entrepreneurs) in 2006. Its work is based on two annual representative surveys of 4,000 companies by TNS Infratest. An advisory board consisting of prominent business representatives was formed specifically for this initiative to identify and support the survey topics. This initiative is a way of emphasizing our position as the best Mittelstand bank. The survey results are discussed with companies, associations, politicians and academics in order to improve mutual understanding and develop viable approaches to solving important problems. In discussion programmes at our regional branches we create networking opportunities and look for points of departure for our sales activities. The initiative is also a way to demonstrate our expertise in the industries and markets in which our customers are active. Another element of our social commitment to education is the endowment of a professorship at the Frankfurt School of Finance and Management. The main research area for this chair is Mittelstand financing and the development of innovative financing alternatives.

New Mittelstand focus on Central and Eastern Europe We have made it our goal to attract more mid-market customers not only in Ger- many but also in selected countries of Central and Eastern Europe and to provide local services to this clientele. This applies primarily to BRE Bank, which was extremely successful in 2006. We reorganized the corporate banking business in Poland, further increasing our 6% market share in the lending business and our more than 8% share in the investment business. Our subsidiary Commerzbank Zrt. opened additional branches in Hungary after introducing a new plan. In future, ten locations will cover the financial needs of small and medium-sized Hungarian companies, 700 of which are already included in our customer base. We want to expand our presence in the Czech Republic and Slovakia in a similar manner in order to be even closer to small and mid-size companies. Last year we established a new branch in Kosice, Slovakia. Preparations are underway for establishing two locations in the Czech Republic. We also have a joint stake with international development banks in a total of seven ProCredit banks in South Eastern Europe. These banks, some of which are already important financial institutions in their own countries, specialize in supporting small and medium-sized enterprises. 44 MANAGEMENT REPORT

FINANCIAL INSTITUTIONS BENEFITS FROM GLOBALIZATION

Financial Institutions, which is part of the Mittelstand segment, is responsible for our relations with German and foreign banks, central banks and national governments. Through a global approach, our worldwide sales network of 29 representative offices and delegate offices is controlled by a central relationship management team based in Frankfurt. They complement the Commerzbank network of operational outlets abroad. In 2006 this business line was again able to surpass the previous year’s result.

New representative office in Vietnam Through our new representative office in Ho Chi Minh City, formerly Saigon, we hope to share in the business opportunities in Vietnam, a real growth market. The office allows us to give our Mittelstand customers direct access to this country, which has an enormous pent-up demand for infrastructure projects and the development of new industries. Our position as a leading foreign trade bank is based on a closely-knit network of relationships with over 5,000 banks throughout the world. We have been able to maintain our substantial 16% market share in the financial processing of German foreign trade. We are especially well positioned in emerging markets, where competition is very strong. For the third time in a row we were awarded first prize for our active participation in the Trade Facilitation Programme of the European Bank for Reconstruction and Development. Financial Institutions supports the international business of our corporate clients by

• providing expert advice on delivery transactions and investment plans; • processing payment transactions in more than 70 national currencies; • handling exchange-rate hedging, also in exotic currencies; • issuing foreign guarantees that reflect local laws and practices; • covering claims under letters of credit or guarantees; • offering all types of foreign trade financing – from simple forfaiting to structured products.

The foundation for this extensive range of services is our foreign expertise, acquired over decades and based on solid knowledge of the cultural, economic, political and legal realities of the various sales and procurement markets.

European transaction banking with a focus on SEPA We expanded our position as a leading European transaction bank and a provider of a broad spectrum of payments services in euros and other currencies in 2006. For example, we focused at an early stage on the effects of the Single European Payment Area, the necessary uniform legal framework (the Payment Services Directive) and the increasingly complex money laundering regulations. We present our products and services at venues such as international trade fairs – particularly SIBOS, the largest banking trade fair in the world devoted to transaction services, which takes place annually. CORPORATE AND INVESTMENT BANKING 45

Through the Money Laundering Prevention Office, which is closely linked to the sales units, this business line meets the increasingly stringent requirements for the identification and prevention of money laundering and terrorism financing. We undertake individual risk assessments for our banking customers on the basis of solid knowledge of the economic and institutional conditions and information on managers and shareholders.

CORPORATES & MARKETS SEES ITS MOST SUCCESSFUL YEAR

2006 was by far the best year for the Corporates & Markets banking department. Corporates & Markets By the end of 2006, it had increased its operating profit by about two-thirds to €617m compared with the previous year and exceeded its 2007 target of 20% 2006 operating return on equity, a year ahead of plan. This resulted in an overall RoE Equity tied up (€ m) 2,394 of 26% for the year. All four business lines – Sales, Markets, Corporate Finance Operating return and Client Relationship Management – contributed to this outstanding perform- on equity 25.8% ance. This extremely successful growth underlines a strategy focused on a cus- Cost/income ratio in tomer-driven business in core markets in Germany and Europe. Going forward, operating business 61.2% we intend to expand our strong position in structured products selectively to include Asia and North America. Significant events during the year also included the successful integration of Eurohypo into the Commerzbank Group, which particularly strengthened our Corporate Finance. In addition, the integration of our Western European and North American International Corporate Banking units into Corporates & Mar- kets has substantially strengthened our market potential and increased our capability to cross-sell multi-asset products to our corporate-client base. The successful development and implementation of a centralized and active credit portfolio management framework and strategy, designed to increase our capital efficiency, was another milestone for the business. An important first step during the year in this strategy was the securitization of a €4.5bn portfolio in the capital markets.

Markets: a leader in structured products The Markets business line saw strong growth in 2006 in its core business activities: equity derivatives, interest-rate products and foreign-exchange trading. Building on an innovative corporate culture, experienced staff and a mature platform, our equity derivatives business continued to grow even stronger, outper- forming the market to achieve a Number 1 position in Germany, with a 21% market share. In addition, we continued to bring new structured products such as fund and commodities products to the market. Leveraging off this leading position in Europe, we also broadened our activities, establishing a structured products team in Asia. In addition, we extended the product range to new asset classes, including investment opportunities in U.S. life-insurance policies. A new fixed-income fund of hedge funds was added, increasing the range of alternative investment strategies we are able to offer. We also opened our CGAL Global Opportunities Fund to outside investors via a new integrated fund platform in Dublin. Both funds received an A rating from Standard & Poor’s. 46 MANAGEMENT REPORT

Further investments were made, strengthening and expanding our foreign exchange trading platform to ensure an around-the-clock control of risk positions worldwide. We also began to integrate physical precious metals trading in Luxembourg into this platform, which will guarantee a more efficient service for corporations and institutional clients in the future.

Sales: growth in public distribution and institutional offering Leveraging our expertise in structured products, we continued to expand our leading role in sales to private customers during the past year. Numerous awards won during the year continued to confirm our expertise in this area. Building on this, we were able to extend our offering across Europe, launching new distribution platforms in Spain, Portugal and Sweden. A second area of focus was the expansion of our institutional distribution platform. Great progress was made, especially in fixed income, cash equities, derivatives and FX products on our institutional sales platforms not only in Ger- many and Europe but also in the US market. Sales to corporate clients were further strengthened with our strong market position in Germany and Continental Europe where we see further potential to sell structured products and risk-related advisory services. The aim is to further improve cooperation with our branches and opportunities for cross-selling.

Corporate Finance – Strong deal pipeline and robust execution 2006 was an outstanding year for Corporate Finance. Favourable market conditions ensured strong growth in all product groups, cementing our position as the leading provider of high-quality financing solutions for corporations and institutional clients in Germany. The integration of Eurohypo also began to bear first fruits, with joint deals completed in the leveraged finance and securitisation groups. In addition, numerous lead management mandates boosted our capability to secure a number one position in the German Pfandbrief market. The Leveraged Finance group continued its success, booking 28 leveraged buyouts (LBOs) during the year. Amongst these, the team arranged nine transactions as Mandated Lead Arranger and bookrunner. This included jointly leading the €800m post-IPO financing of Symrise. The team also worked together with Eurohypo, arranging a €160m financing for the 3i acquisition of ABX Logistics in Belgium, in which Commerzbank acted as global coordinator, lead manager and bookrunner. Our securitization team concentrated on developing new areas of expertise and skill such as collateralized debt obligations (CDOs). The €4.5bn CoCo Finance Limited 2006-1 synthetic securitization of multinational corporate loan exposures was the first structure to have been developed, that not only recycled the Bank’s capital efficiently, but provided regulatory capital relief under both Basel I and Basel II with the approval of the German Financial Supervisory Authority (BaFin). This deal structure then went on to be used for Eurohypo’s synthetic securitization of loans to municipal and cooperative housing associations in Eastern Germany. Also significant was the innovative securitization of 396 unsecured standardized certificates of indebtedness – Schuldscheine – from small and medium-sized companies (Mittelstand) totalling €503m through TS Co. mit One GmbH. This structure allowed Mittelstand companies to profit from attractive capital-market levels. CORPORATE AND INVESTMENT BANKING 47

Debt Capital Markets won numerous lead management mandates for Group companies and corporate bonds. This included prestigious names such as DaimlerChrysler, equity holdings in the Deutsche Bahn, National Grid, Deutsche Telekom, Volkswagen and Leoni. Corporates & Markets Benchmark jumbo Pfandbrief transactions for clients such as Deutsche Kredit segment Bank, Düsseldorfer Hypothekenbank, Eurohypo and EssenHyp contributed to CBG Commerz Beteiligungs- highlighting our leading position in this field in our domestic market. Building gesellschaft Holding mbH on this we began to extend our jumbo activities on an international scale, Bad Homburg v.d.H. 100.0% winning two mandates in Spain for Ayt and La Caixa. In addition, we also achieved a no. 2 position in the European public sector, having arranged bench- Commerzbank Capital Markets Corporation mark issues for the states of Saxony-Anhalt and Lower Saxony and a two-tranche New York 100.0% issue for the City of Madrid. 2006 was also a record year for the Syndicated Loans group. We assisted companies in their landmark acquisition finance including companies such as Linde, Arcelor Mittal and E.ON. Greater weighting was also given to offering our expertise and advice to Financial Institutions in emerging markets – primariliy Eastern Europe. We continued to underline our position as a lead manager, arranging syndicated loan transactions for clients such as the Bank of Moscow and Turan Alem Bank in Kazakhstan. This reaffirmed our position as an important lead manager of syndicated loans for Eastern European companies. Equity Capital Markets (ECM) supported many of our clients in their efforts to raise capital in the equity market. We acted as joint lead manager, for example, in IPOs of Air Berlin and ItN Nanovation and the capital increase of Carl Zeiss Meditec. We also acted as lead manager for Aleo Solar’s IPO and the private placement of FranconoRheinMain. We participated as a syndicated member in many other transactions such as the IPOs of Demag Cranes and Francotyp- Postalia. Last but not least, our M&A team participated in a total of nine deals.

Client Relationship Management strengthens cross-selling potential Our Client Relationship Management (CRM) business line continued to concentrate its activites on the cross-selling of capital-market products to core clients. It provided support and capital commitments in major transaction situations for multinational companies and institutional clients. Throughout the year, we saw a significant increase in demand for corporate finance products such as syndicated loans and bonds. This year also saw the integration of the Bank’s Western European (including Johannesburg) and North American units into Corporates & Markets. A new pan-European strategy was initiated for the Western European branches, in order to bring them even closer together, strengthening our opportunity to max- imize the cross-selling of products. CRM also continues to make good progress on centralizing the back-office functions of our Western European branches in Luxembourg. The next step will be the establishment of a central loan book to support our credit portfolio management framework. North America also continued a very successful business model, consistently producing good results throughout the year.

‡ citylife milan ‡

”Citylife is one of the biggest financing transactions in the history of Eurohypo.”

Fernando Salazar Lacalle has shown in this project how smoothly cooperation can run within the Commerzbank Group so soon after integration. He and his team are on the road from Lisbon through Madrid, Milan and Athens to Istanbul – whenever there are large-scale commercial real-estate financing deals to be won, working together with the local units.

Citylife is currently Italy’s biggest commercial construction project. Planned by the three star architects Zaha Hadid, Daniel Libeskind and

Arata Isozaki, it involves constructing the tallest building in the country on the site of the old trade fair centre, creating new living, working

and leisure space for around 15,000 people. When it is completed in

2014, Citylife will lend new impetus to central Milan and give it a modern face. This project underscores Eurohypo’s market position as Europe’s leading financier of real estate.

Fernando Salazar Lacalle Manager Corporate Banking Southern Europe at Eurohypo.

50 MANAGEMENT REPORT

commercial real estate, public finance and treasury

As part of the process of integrating Eurohypo we set up the Commercial Real Estate, Public Finance and Treasury division, which has brought together all of the commercial real estate, public finance and treasury business of the Commerzbank Group under one roof.

Commercial Real Estate Segment

The Commercial Real Estate segment comprises Commercial Real Estate, CommerzLeasing und Immobilien AG, Corecd GmbH and Commerz Grundbesitz- gesellschaft mbH. The latter was part of the Asset Management segment until the end of 2006 and so is not yet included in the figures reported. On a pro-forma basis, i.e. if Eurohypo is fully included in the comparative figure, operating profit rose by €148m to €532m. The segment achieved an operating return on equity of 13.5%.

Commercial Real Estate: targets for 2006 met in full Commercial Real Estate Eurohypo achieved its ambitious targets both in terms of market penetration and of expected earnings. At €34.9bn, new business exceeded the previous record 2006 year of 2005 by 15%. Eurohypo approved loans amounting to €9.8bn in the Equity tied up (€ m) 3,097 domestic market and €25.1bn outside Germany, once again providing clear Operating return evidence of its dominant position in the market. Operating income rose by €69m on equity 14.3% or 7.5%. The increase of €52m or 12.4% in administrative expenses is mainly due Cost/income ratio in to the regional expansion into new markets. These investments will already be operating business 38.9% generating income in 2007.

Successful ongoing strategic development By taking over Eurohypo, Commerzbank has also become a significant player in the real-estate finance business. From Eurohypo’s standpoint the association with Commerzbank AG has improved its competitive position: sharing existing resources, supplementing the range of products with those of Commerzbank and receiving support from the branch network in opening up new markets all give rise to cost and income synergies. Eastern Europe has been at the core of the ongoing internationalization process, with branches and representative offices being opened in Russia, Turkey and Romania. Eurohypo is preparing to open a branch in Dubai to be shared with Mittelstand and the Private and Business Customers segment. An additional focus was on entry into the Japanese market, which will be followed by additional Asian locations in 2007. COMMERCIAL REAL ESTATE, PUBLIC FINANCE AND TREASURY 51

Development of the buy-and-manage concept continued Group companies and 2006 again saw a conceptual reinforcement of the core of our business model. equity holdings in the Eurohypo is growing from being solely a lender to real-estate customers to Commercial Real Estate, acting as an intermediary between customers and the capital markets. Our cus- Public Finance and Treasury tomers benefit from the employment of capital-market products, such as syndi- division cation and securitization, which we use to optimize the servicing and structuring CommerzLeasing und of their financing requirements. We also employ both instruments to actively Immobilien AG manage the real-estate loan portfolio. Düsseldorf 100.0%1) The aim is to optimize the portfolio’s risk/return profile, in particular under the new Basel II rules. The most significant measure taken last year was the syn- CORECD Commerz Real Estate Consulting and Development thetic securitization of loans to finance residential real estate in Eastern Germany GmbH amounting to €1.85bn. Berlin 100.0% Being associated with the Group also proved its worth in executing this transaction, since Commerzbank Corporates & Markets acted as lead manager Erste Europäische Pfandbrief- und Kommunalkreditbank Aktien- for the placement of the securitization, thus realizing income synergies. gesellschaft in Luxemburg Luxembourg 75.0% Eurohypo once again successful in 2006 with landmark deals As in previous years, we once again succeeded in playing a role in a number of Eurohypo AG outstanding transactions on the international real-estate markets in 2006. It is in Eschborn 98.0%2) these complex deals especially that our large underwriting capacity, structuring expertise and mix of financing and advisory services show their worth. Hypothekenbank in Essen AG Eurohypo financed Italy’s largest construction project in Milan, the new Essen 51.0% Citylife quarter. As sole arranger, we provided €1.7bn for the construction of apartments, offices, shops and cultural establishments. In our home market of 1) The Parent Bank holds some Germany we financed a €710m portfolio of four shopping centres in Cologne, of the interest indirectly; Düsseldorf, Mülheim and Krefeld and prepared it for subsequent securitization. 2) the Parent Bank holds the interest indirectly. We also succeeded in assisting our customer with a convincing concept to finance and securitize a portfolio from the federal state of Hesse with a volume of €550m, which we won in a bidding process against the competition. In Madrid our team joined up with specialists from Commerzbank Real Estate Investment Banking to provide the acquisition finance for a Spanish real-estate company and advised the buyer on the transaction.

Bundling capital market expertise We once again proved our claim to a leading position in the syndication and securitization business with a placement volume of €16.3bn. Of this amount, €8.1bn was for securitizations and €8.2bn for syndications. The close cooperation between our specialists in syndication and securitization gave our customers greater flexibility to optimize their income, including by linking the two types of financing. We consider developments on the German securitization market to have been particularly successful. Using our ”Opera” securitization platform we executed true-sale transactions for the first time in Germany, with a volume in excess of €800m. We acted as joint arranger for the biggest securitization transaction to date in Germany, the placement of €5.4bn for Deutsche Annington. 52 MANAGEMENT REPORT

Positive market trends providing the basis for a successful 2007 The market forecasts from our own real-estate experts and from external specialists lead us to expect continued good conditions on the major markets. Germany has been very much in the focus of institutional real-estate investors over the last two years. Any weakening of the boom in foreign investments can be compensated by the improving economic situation in Germany. We expect a continued reduction in the oversupply of office space and rising top-level rents. Strong demand for top locations and large sites is likely from the retail sector. Investors will also continue to focus on large residential portfolios. The outlook is also good for the most important region for our business, the European commercial real-estate markets. Developments in Western European office markets were all good in 2006; we saw a reduction in vacant office space, especially in central locations, and rising top-level rents. The economic outlook for Europe leaves us expecting a continuation of the solid markets for this year. Countries in Central and Eastern Europe and Turkey are benefiting from their high economic growth. There are signs of rising top-level rents in prime locations over the next few years. A distinction has to be made when viewing trends in the retail market in the East as opposed to the West, as the lower purchasing power in Eastern Europe suggests there may be regional oversupply. US office markets performed well last year, as can be seen in the drop in vacant space and rising rents. This will continue in 2007. Performance on the retail market was also buoyant in 2006, supported by robust private consumption. We expect this to continue too over the medium term.

CommerzLeasing und Immobilien reinforces its market lead At €62m the CommerzLeasing und Immobilien Group (CLI Group) achieved the best result in its history. At the same time it reinforced its position as one of Germany’s leading leasing companies, writing new business amounting to more than €3.2bn. Strong growth in the mass market made a substantial contribution to the company’s success. Our business outside Germany and equipment leasing proved to be particularly dynamic. Assets under management currently stand at €29bn. The good overall result reflects transactions in all sectors:

• In structured investments, the focus of our business for commercial companies was on balance-sheet structure management and for the public sector on PPP projects. We expanded business in this segment further in 2006. The outstanding project is the Elbphilharmonie building in Hamburg, with a volume of €241m. As part of a bidding syndicate the Group registered a public-private-partnership with the City of Hamburg. The CLI Group also took advantage of the revival in the real-estate markets to dispose of the Rondo Onz, an office building under construction in Warsaw’s financial district, to institutional investors. COMMERCIAL REAL ESTATE, PUBLIC FINANCE AND TREASURY 53

• In the CFB fund sector the CLI Group once again placed a large German fund, with an investment volume of €206m with private investors to finance the Eschborn Plaza office building in Eschborn. September 2006 saw the start to the distribution of the new CFB 160 fund Comcast Center, Philadelphia, which has an investment volume of USD 500m. We also placed the Campeon, Infineon AG’s new headquarters, with equity of €110m, with an institutional investor in a private placement. In all, funds raised from capital investors in 2006 amounted to more than €1bn. Investors also benefited in 2006 from the early marketing of two fund properties: CLI Group sold the Financial Tower in Jersey City, USA to institutional investors. With sales proceeds of USD 204.6m, the investors earned an average annual return in excess of 12%. The CFB 144 fund was also liquidated: the property here was the former BVB Westfalenstadion in Dortmund. Investors participated in total the profit distribution forecast in the prospectus together with the premium they had paid. The volume of investors’ capital in what are now 160 CFB funds grew to €4.4bn, with a total of 108,000 separate holders. By the end of 2006, around 96% of all CFB funds launched to date had achieved or exceeded the forecast profit distribution. With this the CLI Group has shown a first-class performance.

• With growth at around 24% on the equipment leasing side, new business saw dynamic year-on-year growth. In Germany the rise was due to operating in combination with Commerzbank’s branches under the leasing initiative for Mittelstand companies. The business is split into the traditional three segments: plant and machinery, vehicles and IT equipment. A new feature last year was the introduction of e-commerzleasing for smaller companies. Standardized processes and internet-based processing allow smaller leasing transactions to be processed very rapidly. Larger companies wanting to use leasing investments to limit the impact on their balance sheets, even under IFRS and US GAAP accounting, registered increasing interest. We also report a substantial increase in the share of business outside Germany. Our Polish subsidiary BRE Leasing, where new business increased by around 50%, made a particularly strong contribution here.

The CLI Group has positioned itself as a leading company in the leasing industry. It is focusing on more growth and improved profitability again in 2007. 54 MANAGEMENT REPORT

Public Finance and Treasury segment

This segment comprises the public finance business of Eurohypo, Hypotheken- bank in Essen, Erste Europäische Pfandbrief- und Kommunalkreditbank in Luxemburg as well as Group Treasury.

Eurohypo’s public finance business consistent in its strategic orientation Public Finance und Treasury The main feature of Europhypo’s public finance business in the year under review was a consistent pursuit of the strategy formulated. At the heart of this 2006 strategy is the central management of the overall portfolio booked in Frankfurt Equity tied up (€ m) 1,104 and Luxembourg in line with a buy-and-manage approach and the optimal use Operating return of opportunities for funding by means of public-sector Pfandbriefe and lettres de on equity 25.5% gage. On the asset side, besides an increase in international diversification (the Cost/income ratio in planned expansion of business in North America and Asia) it is principally those operating business 27.5% areas of business offering better margins because of in-house origination, inten- sified use of structured products and the increase in the use of credit derivatives that are at the forefront of our activities. There is a growing significance in this context of PPP business, whereby the private sector finances public-sector infrastructure projects. Stronger cooperation with Commerzbank’s marketing areas is also an important component of our public finance work.

Hypothekenbank in Essen is one of Germany’s largest Pfandbrief banks Despite difficult market conditions, Hypothekenbank in Essen AG succeeded in expanding its business in 2006 and reported total assets for the first time in excess of €100bn. This puts Essen Hyp in the ranks of Germany’s largest Pfand- brief banks. The bank achieved a record volume of new business on both sides of the balance sheet in the year under review. It also expanded its real-estate business, especially in the retail area. By means of securitizations and guarantees it achieved a reduction in risk-weighted assets in real-estate financing transactions that will help it to expand the business in future. With an upgrade in its rating by Standard & Poor’s to A-, Essen Hyp now has a single A rating from all three of the reputable agencies. The AAA ratings for the public-sector Pfandbriefe were confirmed last year. The key return figures confirm the success of this segment: after-tax return on equity rose to 13.2%, and at 15.9% the cost/income ratio remained at a very good level. This makes Essen Hyp one of Germany’s most cost-efficient banks.

Erste Europäische has the best result in its history 2006 was the most successful year to date in the company’s history for Erste Europäische Pfandbrief- und Kommunalkreditbank AG in Luxembourg. It once again significantly raised its income in absolute terms and also its return on equity. Total assets remained virtually unchanged. Standard & Poor’s also confirmed its AAA rating for EEPK’s retail Pfandbriefe (”lettres de gage publiques”). EEPK was the first-ever bank to bring to market the issue of a mortgage Pfandbrief under Luxembourg law (a ”lettre de gage hypothécaire”) at the beginning of 2006. It continues to be positioned as the innovative, international and highly profitable public finance bank of the Commerzbank Group in Luxembourg. COMMERCIAL REAL ESTATE, PUBLIC FINANCE AND TREASURY 55

Successful integration of Eurohypo Treasury into Group Treasury Commerzbank Treasury division is responsible for managing the Group’s balance-sheet structure and, with staff in Frankfurt, London, Luxembourg, New York und Tokyo, is present in all the Group’s major locations. In the year under review the focus was on integrating Eurohypo AG’s Treasury activities. Accordingly, the organizational structure of Group Treasury (ZGT) was redefined in terms of functional and regional responsibilities, and work was successfully concluded to create uniform methods and management philosophies. We also undertook steps to optimize the balance-sheet structure. These included for example a reduction in unsecured funding, especially on the interbank market, and improving synergies by creating a uniform market presence for Commerzbank AG und Eurohypo AG on the capital markets. Agree- ment was reached on all issuing activity in the newly established Capital Markets Committee, which is made up of representatives of all the major units within the Group, with the aim of achieving the best possible funding costs and a broad diversification of our sources of funding. In the year under review, Commerzbank AG raised hybrid core capital for the first time. We succeeded in placing a volume in excess of €2bn in euros and sterling in the first quarter with European institutional investors. We then placed €300m of hybrid capital with Commerzbank’s retail customers in the autumn. For the first time in years we actively used the capital markets to raise subordinated capital. An amount of €1.25bn was very successfully issued in the Euromarket and a transaction was executed for the first time on the Canadian (”maple”) capital market. The currency risk on this CAD 300m subordinated capital was hedged with a subordinated swap into euros. Along with ensuring that the Group is solvent at all times, one of Treasury’s major responsibilities is managing the interest-rate risks in the banking book. ZGT was quick to spot the rise in interest rates on the capital markets and position the banking book accordingly. The investment models of the various business divisions were shortened in anticipation.

The pro-forma figures have not been audited. ‡ SKILLs MANAGEMENT ‡

”Our staff are our most important asset. But do their skills match our requirements? Skills management provides the basis for an HR development process that is both stringent and in line with our needs.”

Daniel Schmitt, Manager ZPA Systems & Processes and his project team introduced ”Comskill”, the skills management system of

Commerzbank.

Skills management provides the basis for staff to be able to make optimum use of their strengths and interests, and to play an active role in shaping their career planning. This instrument helps managers to quickly identify employees’ different levels of knowledge and skills,

and to promote these in a targeted manner. Skills management gives Commerzbank one of the most modern HR management tools.

Daniel Schmitt Manager Human Resources (ZPA), Systems & Processes.

58 MANAGEMENT REPORT

staff and welfare report

The work we do in the area of human resources affects the Bank’s efficiency, our appeal as an employer and the motivation and expertise of our staff, thus making a vital contribution to the success of the company.

Selectively joining expertise: skills management The skills required of Commerzbank employees are constantly changing in response to the rapidly changing needs of our customers. Our ”ComSkill” skills management system allows us to capitalize more effectively on employees’ potential, to assess this potential more systematically and individually and hence hire qualified individuals for key positions in the bank over the long run. Employees voluntarily store a profile that describes their professional qualifications, experience and personal skills, making this information transparent for managers throughout the Bank. At the same time, information about which skills are required for which functions is also available to employees. This lets them compare their qualifications profile with the requirements necessary for a specific position and identify new responsibilities and development possibilities for themselves. The managers in the Bank get an overview of the potential that exists, giving them a basis for creating development and succession plans. After the launch of an initial pilot phase in Commerzbank in 2003, the system has been vigorously expanded in the years that have followed. At the end of 2006 it was available in all branches and is currently being introduced at head office, where roll-out is scheduled for completion by the middle of 2007. In 2006, Commerz- bank integrated ComSkill into a highly structured HR development process and added new tools to it. The voluntary self-assessment is now only the first step: it is followed by mandatory meetings for all employees, focusing on potential. In these meetings, the managers will use a structured process to compare the self-image of their employees with their own observations. Building on the assessment of potential, managers and employees work together to reach a decision about the steps necessary to acquire additional qualifications or take on new responsibilities.

Important snapshots of the current mood – staff survey as a standard procedure Systematic staff feedback supplies company management with critical information about how to structure its own activities. Consequently, Commerzbank conducted an extensive survey of its employees in 2005, working together with a renowned market-research institute. This survey produced a detailed profile of the Bank’s strengths and weaknesses along with a list of concrete suggestions for improvement in the areas of market and customer orientation, communication of strategic orientation and HR development and management. We continued to pursue these activities in 2006. Commerzbank conducted another staff survey in October and November of 2006. This time, the focus was on taking a snapshot of the current mood. As in the previous year, the degree of staff loyalty to the company and motivation were surveyed. Employees had an opportunity to provide unfiltered feedback to company management in an anonymous online survey. Almost as many took part as in the previous year (72%), with 71% of all staff both in Germany and abroad participating. The employee survey has STAFF AND WELFARE REPORT 59

Data on Commerzbank’s personnel*)

2006 2005 Change in % Total staff Group1) 35,975 33,056 8.8 Permanent staff Group2) 33,325 30,177 10.4 Total staff Parent Bank1) 24,327 24,649 –1.3 including: based abroad 1,957 1,934 1.2 including: trainees 1,372 1,332 3.0 Permanent staff Parent Bank 22,250 22,399 –0.7 Length of service 14.7 14.4 Average age 40.6 40.4 Staff turnover ratio Parent Bank in Germany 3.2% 3.1% Percentage of sick 3.3% 3.3% Percentage of part-time staff 21.1% 20.8% Total pensioners and surviving dependents 12,178 12,022 1.3

*) Actual number employed; 1) including local staff in representative offices and cleaning and kitchen personnel, excluding staff on maternity leave and long-term sick; 2) employees, excluding trainees, junior executive staff, temporary staff, volunteers, cleaning and kitchen personnel, staff on maternity leave and long-term sick. thus established itself as a standard tool for company management at Commerz- bank. The surveys for taking a snapshot of the current mood are to be carried out once a year, while the comprehensive analyses of strengths and weaknesses are scheduled for every three years, with the next one taking place in 2008.

Diversity inspires performance Our strength lies in our differences. Since the end of the 1980s Commerzbank has been systematically pursuing a strategy of diversity. This strategy focuses on diversity among our employees and treating one other with respect. By promoting diversity, we aim to enhance our success through integrating people and tapping into their differences. The Bank serves different customer groups in different markets. For this reason we also need diversity among our employees, who should all feel at home in the Bank despite their differences and should not only enjoy working at the Bank but who also do it well. Diversity safeguards the appeal of the Commerzbank as an employer for various groups of employees and fosters a productive corporate culture. In 2006, Commerzbank considerably enhanced the initiatives it offers to promote diversity. The day nursery, which was opened in Frankfurt in cooperation with Family Service the year before, now has room for 100 employees’ children, providing regular childcare. In addition, Family Service is available to our employees in large parts of Germany, offering an extensive range of advisory services for parents. In 2006 the Bank offered various training events on diversity issues, for example, seminars for parents and workshops for female managers and young women with potential. The proportion of women in Commerzbank has increased to 50.5%. Important for this development was the rise in the quota of women working as non-pay-graded employees to more than 26% in 2006 – while, in 1980, it was only at around 3%. In 2007, Commerzbank will take the issue of cultural diversity to the next level; there are currently people from 76 countries working together at the Bank. Inter- generational cooperation is also worthy of special attention because the demographic structure is changing, both outside and inside the Bank. 60 MANAGEMENT REPORT

Younger employees are the key to the future – training at Commerzbank ‡ special awards In 2006, Commerzbank once again hired more than 500 trainees. This means 2006 ‡ that by the end of the year under review there were 1,370 young people training for their professional careers at Commerzbank AG, which represented a slight Work & Family audit increase over the previous year and a comparatively good trainee quota of 6.3%. For the second time, the This is a testament to our commitment to meeting our social responsibilities non-profit Hertie Foundation towards the younger generation. That our efforts truly stand out in this area awarded Commerzbank the is evidenced by the fact that we provided training that extended beyond highest ”Work & Family our own needs in 2006. There is intense competition in Germany, no longer Audit” certificate for family limited just to the best college graduates but also increasingly for well-qualified awareness in our HR policy. school leavers. We have successfully positioned ourselves as an attractive employer for trainees in this difficult competitive environment. Contributing to Total E-Quality these efforts were, among other things, our marketing campaign on the theme For the fourth time, Commerz- ‡ I’m joining the bank ‡, various events for teachers and pupils and regu- bank received the TOTAL lar internet chat sessions that have made our target groups more aware of the E-QUALITY award for having professional training offered at Commerzbank. Training is the key to the future. an HR policy based on equal Commerzbank therefore expanded and modernized its training programmes in opportunities for men and 2006. The Bank offers a wide range of different training options. We offer the women. This prize has been traditional dual training programme for bankers, business people for office com- awarded over the last ten munication and IT specialists, and also courses of study in cooperation with years by the body of the professional institutes and the Frankfurt School of Finance and Management same name. leading to various bachelor degrees and diplomas. The training programmes themselves have been more closely aligned with distribution and sales, which is Advertising annual reflected in equal measure both in the communication and staff selection and In the May 2006 publication of in the content of the training. In 2006, the Bank made the CLiCNET learning the standard reference book portal available to its trainees, which gives them online access to supplementary for the German advertising learning and communication possibilities. With this portal, we are striving to industry, the Commerzbank systematically bring together e-learning and classroom methods. apprentice and trainee campaign made it into the top ten The Bank’s new compensation plan – results and performance the key criteria in the category ”Recruiting and Intelligent compensation systems have a positive effect on the success of a com- employee communication”. pany’s business. They are key factors in attracting and keeping qualified employees. In 2006, Commerzbank began to implement components of the new vario compensation plan. vario gives equal weight to results and performance, hence fostering a culture of performance and motivation in our company. On January 1, 2006 the new profit-sharing plan for collective pay scale and non- collective pay scale employees was introduced. The total volume of this profit- sharing plan is measured on the basis of the results of the Bank and its divisions. Starting from a base amount, individual payouts are determined using performance criteria. The Bank also developed a new bonus system for non-collective pay scale employees in 2006. Starting in January 2007, the bonus volumes for non-collective pay scale employees have been set top down based on operating results and paid out according to performance criteria. Both components of the new compensation scheme now leave it up to managers’ discretion to specially acknowledge strong performers. STAFF AND WELFARE REPORT 61

Health management It is a truism that the healthier employees are, the better their performance will be. The Bank’s health management team wants to make its contribution to this. In 2006 we continued our proven across-the-board cooperation with our external provider, Deutsche Bahn GesundheitsService GmbH. A pilot study on stress management showed how important it is to help employees deal with stress productively. Commerzbank can boost its own efficiency in this way, as stress can lead to work absences and a decrease in performance potential; employees who are able to cope with stress perform better. Our activities concentrated on the areas of ergonomics and management of absences from work. In future we want to offer a Bank-wide, structured system for managing absences from work at management level. A campaign for healthier food in the cafeterias is also on the agenda for 2007. Demographic changes have put prevention and health checks more firmly into the healthcare spotlight.

Integration of Eurohypo The takeover of Eurohypo, at the end of 2005, was the largest and most significant company acquisition in the history of Commerzbank AG. As early as the beginning of 2006, top-level managers at both companies switched places to prepare for and drive forward the process of integrating Eurohypo into the Commerzbank Group. Step-by-step measures were undertaken to foster and accelerate the integration of the two companies. These included opening up the internal job markets, social and fringe benefits (e.g. shares for employees), Kids & Co., and having trainees work in both companies. A particular focus was on putting together credit processing in the private customer segment of both companies, which has been pursued and driven forward since the end of the second quarter of 2006 as part of a separate project called ”Retail Credit Business”. In addition to introducing uniform processing procedures on a shared credit platform, other essential components of this project, which is also supported by HR, are organizational realignment, filling newly created positions and integrating Eurohypo employees into Commerzbank AG.

Thanks for cooperation HR efforts can only be successful if company management and employee representatives work together constructively. We would therefore like to extend our thanks to the staff councils, to the representatives of the Bank’s senior staff, and to the representatives of both the severely disabled and younger staff for their responsible and productive cooperation. Of course, we would also like to thank all of our employees. Their dedication and performance made the success of our Bank in 2006 possible.

‡ cominvest FONDAk ‡

”My goal is to be better than the market, even in years that are not so good for equities.”

Heidrun Heutzenröder has managed the successful cominvest Fondak German equity fund since 1998. This native of Frankfurt is considered

to be a proven expert in German equities and manages a total of around €3.5bn for investors.

The 56-year old cominvest Fondak fund is not only Germany’s oldest

equity fund, it is also one of its best. Since it was launched in 1950 it has generated an average annual return for investors of 11.6%. In selecting stocks, Heidrun Heutzenröder looks for undervalued

companies with strong asset backing listed on the Dax and the M-Dax. ”I was already looking at dividend yields eight years ago, when other

people only ever talked of growth.” Besides studying the key figures in

companies’ balance sheets, this economist sets great store by regular face-to-face meetings with the top names in German business. Heidrun Heutzenröder Fund Manager at cominvest. 64 MANAGEMENT REPORT

share price, strategy and outlook

Data and facts on the Commerzbank shares: Strong start in 2006 Commerzbank share 2006 was another very good year for the stock market. Rising corporate profits and the expanding domestic economy, especially in the second half of the year, Bearer shares 803 200 gave German stocks a significant boost. The DAX index closed the year at 6,597 Reuters CBKG.DE points, gaining 22% in 2006 and reaching its highest level since February 2001. Bloomberg CBK GR Commerzbank shares began 2006 in a strong position, building on the excellent ISIN DE0008032004 performance of the previous year. Supported by the acquisition of Eurohypo, high expectations for the German real-estate market and excellent corporate results, the share price rose continuously until May, when it reached its high for the year at €33.96. After consolidating at mid-year, performance was above average towards the year-end. As a leading German commercial bank, Commerzbank definitely profited from the extremely strong economic growth. Our shares closed at €28.85 on the last trading day of the year, up 11% on the price at the end of 2005. Because of the successful business growth of Commerzbank and our leading position in the German market, our shares were in great demand on the stock exchange. Daily trading volumes climbed from an average of 4.3 million shares in 2005 to 4.8 million in 2006. A market capitalization of €19bn at the end of 2006 made Commerzbank the 13th-largest member of the DAX, and our weighting in the index increased to 2.52%.

Active dialogue with the capital market The Board of Managing Directors, senior executives and Investor Relations again expanded the dialogue with the financial community during the past year. We provided information about current trends at Commerzbank and the success achieved in our various business lines at more than 500 one-on-one meetings, in 25 roadshows and at eleven international conferences. We spoke with a total of around 1,000 institutional investors and analysts. Commerzbank held its fifth Investors’ Day last September, and it was a great success. More than 100 institutional investors and analysts were invited to Frankfurt as our guests. All the members of the Board of Managing Direc- tors reported in depth on the development and strategic positioning of the business lines for which they are responsible and answered participants’ detailed questions. This year the Commerzbank Investors’ Day will be held on September 20.

Performance of the 135 Commerzbank share 2006 130 Daily figures, 125 30.12.2005=100 120 115 110 105 100 95 90 Jan. Feb. March April May June July Aug. Sep. Oct. Nov. Dec. SHARE PRICE, STRATEGY AND OUTLOOK 65

The high number of hits on our website also indicates great interest in Turnover in Commerzbank. Company and share information, annual and interim reports, Commerzbank shares 2006 presentations and breaking news about corporate developments are available in € bn, quarterly figures on the Investor Relations pages to all interested parties. The fact book entitled 9.6 ”Commerzbank – Figures, Facts, Targets”, which is sent to our shareholders four 8.9 8.3 8.6 times a year, gives a condensed summary of the Bank’s business development, strategy and targets. We celebrated our debut in the tier 1 capital market by issuing the first Commerzbank hybrid bond. This was the first time in years that Commerzbank has floated a public issue on the bond market. Hybrid capital totalling €2.2bn was placed with institutional investors. The takeover of Eurohypo has made Commerzbank Group one of the largest capital market issuers on the bond markets in the world. Our Group coordinates the activities of Eurohypo, Essenhyp, Erste Europäische Pfandbrief- und Kommunalkreditbank (EEPK) Daily turnover and Commerzbank AG, which have a total amount of securities issued and in million units outstanding of €270bn. Investor Relations will therefore continue to expand communications with fixed-income investors and analysts in 2007. High 27.50 Low 1.19 The dividend Average 4.76 Commerzbank posted a consolidated surplus of €1,597m in 2006. Our shareholders will participate in this success by receiving a higher dividend. At the Annual General Meeting on May 16, 2007, the Board of Managing Directors and the Supervisory Board will propose a dividend of €0.75 per share. The amount distributed will total €493m, giving a payout ratio of 31%. Our goal is to continue to increase the dividend payment in the future and create added-value for our shareholders.

Commerzbank on the way to sustainable growth In the past year Commerzbank has laid the foundation for future growth. The successful integration of Eurohypo has significantly strengthened our position as the leading German commercial bank. Our Group has not only consolidated its good position in the private and business customer markets but has also become the leading provider in the area of commercial real estate and the leading issuer of Pfandbriefe in Europe. By integrating the activities of Eurohypo into Commerzbank the Group will achieve significant synergies totalling more than €142m, which will be fully reflected in the results no later than 2008. We have decided on an offensive strategy for the coming years and have established efficiency and growth programmes in almost all the operational divisions. We feel that our targets for 2007 are attainable. Given the information currently available, we do not expect any particular risks. In the Private and Business Customers segment, however, an increasing number of personal bankruptcies is likely.

Private and Business Customers segment We are currently focusing a great deal of attention on this segment. In the autumn of 2006 we launched a campaign called ”Future Through Growth”, which offers innovative products and services and is designed to appeal to new customers. We want to attract a total of 800,000 new retail customers to our branch business and to comdirect bank by 2009. At the same time, our efficiency 66 MANAGEMENT REPORT

Stock-exchange listings of programmes will reduce operating expenses. A new credit platform will be the Commerzbank share established as a result of the Eurohypo integration process, for example. Our goal with all these programmes is to achieve cost leadership so that we can effi- Germany ciently exploit the potential from this important part of the credit business. • Berlin-Bremen In addition, the Private and Business Customers segment will profit the most • Düsseldorf from cost-cutting in the IT area. We intend to earn an operating return on equity • Frankfurt of 18% by 2010 at the latest. • Hamburg • Hanover Asset Management segment • Munich In the past year we launched a growth programme called Alpha: the strategic • Stuttgart focus of this is to develop the Asset Management segment in Germany. We are • Xetra also investing significant amounts in products, innovation and sales with the Europe aim of increasing cominvest-managed assets from the current level of €58bn to • London at least €100bn by the year 2011. • Switzerland North America Mittelstand segment • Sponsored ADR (CRZBY) With an operating return on equity of 27.2%, the Mittelstand segment was CUSIP: 202597308 definitely one of the growth drivers in the Group during the past year. We want to build on this high level of profitability in the current year and expand it further. In Germany we will expand our successful growth programme called ”Move to the Top” and strengthen our position as the leading bank for Mittel- stand customers. We will concentrate primarily on innovative products tailored specifically for this market and on advisory services, rapid credit processes and close interlinking with Corporate and Investment Banking. Commerzbank is a leader in Germany when it comes to focus on the Mittelstand, quality of advisory services and competitive terms. In the countries of Central and Eastern Europe we will consolidate our position and generate sustainable growth. Our Polish subsidiary BRE Bank has set a course for further growth after a record year in 2006. The customer base, which this year totalled 1.6 million retail customers, will be increased by an additional 370,000. In addition, our extremely successful Internet banking business model known as mBank will be rolled out in the Czech Republic and Slovakia. We will also seek to strengthen our presence in Russia.

Corporates & Markets segment In Corporates & Markets we want to build on the good performance of 2006 and achieve a sustainable operating return of over 20%. We see growth opportunities in all four business lines – Sales, Markets, Corporate Finance and Client Relationship Management – for serving large multinational corporations. Struc- tured products will continue to play an important role: Commerzbank intends to further consolidate its market leadership in this area in Germany. We are also planning to offer this range of services in the United States and Asia on a selective basis. Collaboration with Eurohypo also offers considerable potential. The overriding principle in all these businesses must always be a strong customer focus with low market price risk and low volatility. SHARE PRICE, STRATEGY AND OUTLOOK 67

Commercial Real Estate segment In addition to Eurohypo, CommerzLeasing und Immobilien and Corecd, in which the commercial real-estate activities of Commerzbank AG are concentrated, Commercial Real Estate has since the beginning of 2007 also encompassed the open-ended property funds of the Commerz Grundbesitz Group. This new structure has allowed us to combine the real-estate interests of the financing and investment products areas of the Commerzbank Group within one unit. We will continue to drive international expansion in this newly established segment. Our goal is an operating return of 16%, which we intend to achieve by 2008 at the latest. The securitization and syndication business will play an important role in increasing profitability. Eurohypo now has a comprehensive real estate investment banking operation, as well as traditional real estate financing. We cover the entire value chain, from advisory services to structuring and executing real-estate transactions and underwriting issues for further placement.

Public Finance and Treasury segment We intend to become a leading European provider in the Public Finance and Treasury segment. The focus will be more on qualitative growth than on increasing total assets. In view of the financial difficulties in the public sector, we see considerable potential for generating added value for our customers with structured products. This will generate stable contributions to Commerzbank profits, independent of the market situation.

Outlook 2006 was the best year in the history of Commerzbank and we are also optimistic for 2007. The performance in the first few weeks of the year has confirmed this positive outlook. The prospects for the German economy continue to be bright, and the impact of the increase in value-added tax has not been as negative as generally expected. We are committed to being the leading commercial bank in Germany with a nationwide presence and also the best bank for our customers, and we will hold ourselves to this high standard in the future. We did not just meet our earnings targets for 2006, we exceeded them. Our goal for 2007 is an after-tax return on equity – adjusted for special factors – of more than 12%. We are focused on achieving an after-tax return on equity of 15% by 2010.

Commerzbank’s 2007 financial calendar

May 9, 2007 Interim report as of March 31, 2007 May 16, 2007 AGM, Jahrhunderthalle Frankfurt August 9, 2007 Interim report as of June 30, 2007 September 20, 2007 Commerzbank Investors’ Day Early November 2007 Interim report as of September 30, 2007 February 2008 Annual results press conference 2008

All the major Commerzbank corporate news items are also available from “Investor Relations” on our homepage: www.commerzbank.com.

‡ awards for Corporates & Markets ‡

”We are market leader for structured securities products in Germany.”

Klaus Oppermann, who has global responsibility in Corporates & Markets for the public distribution of securitized derivatives, knows the factors that lead to success in this dynamic business.

Commerzbank offers more than 20,000 structured securities in

Germany alone. This produces an annual turnover of around €55bn. ”Not only do we offer our customers tailor-made products attuned to

current market sentiment,” says Klaus Oppermann, ”the Commerzbank trading platform also enables investors to execute their orders within seconds, even outside normal stock-exchange opening hours.”

Klaus Oppermann Manager Public Distribution, Corporates & Markets.

70 MANAGEMENT REPORT

Risk Report

contents

I. Main developments in 2006 71

II. Risk-based overall Bank management 73

1) Risk-policy principles 73 2) Risk-management organization 74 3) Group risk strategy 76 4) Risk-taking capability 77 5) Compliance 78 6) Internal auditing 78

III. Risk management 79

1) Default risks 79 2) Market price risks 87 3) Funding risks 89 4) Operational risks 90 5) Business risks 92 6) Unquantifiable risks 92

IV. Outlook 94

The pro-forma figures have not been audited. RISK REPORT 71

I. main developments in 2006

• The provision for possible loan losses including a one-off provision of €293m for the retail business amounted in 2006 to a pro-forma total of €930m (reported in the balance sheet at €878m) compared with a pro-forma provision in the previous year of €847m1), a rise of €83m or 10%. This includes the full amount of the one-off IFRS/Basel II provision for 2007 announced at our Investor Day in September 2006, so there will be no more charges arising from this source. New defaults were down significantly in 2006, with the result that the operating net provision for possible loan losses (i.e. excluding the one-off provision in Retail) dropped to €585m at equity. Bringing Euro- hypo’s actual provision for possible loan losses in the first quarter amounting to €52m into the equation gives a pro-forma operating provision for possible loan losses of €637m; this represents a year-on-year drop of €210m or around 25%.

• A due diligence review of the Eurohypo loan portfolio carried out at the beginning of the year with the help of external experts came to the conclusion that the value of the collateral in the commercial business is appropriate and that the risk in the default portfolio is adequately covered. In addition, a Section 44 audit carried out on behalf of the regulatory authority confirmed that the Eurohypo risk processes are appropriate and conform to the Mini- mum Requirements for the Risk Management of Credit Institutions (MaRisk).

• The integration of Eurohypo into the Group’s risk-management processes was virtually completed by the end of 2006. The Group’s well-established rating-based system of competences was revised and the competences of the various committees increased in a targeted manner; this was the way we integrated Eurohypo into the Group structure of decision-making bodies. In addition we have set up a uniform means of management across the Group so that any decisions on the methods and processes to be used are only ever made by Central Risk Control and the risk situation is interpreted in all of the Group’s reporting in a uniform manner. In addition, we have succeeded in retaining all of Eurohypo’s main risk-management decision-makers and integrating them into the new organizational structure.

• We completed the new conceptual plan for Commerzbank and Eurohypo’s Retail operative credit function with an eye to creating a shared credit factory and will be implementing this across the Group in 2007. This operative credit function will in future concentrate on taking risk-appropriate decisions, managing and monitoring the loan portfolio and prevention and workouts. At the same time, the credit factory that has been newly established on the front-office side will be responsible for efficient, customer-oriented processing and operational management of the portfolio. We now have substantially better scoring systems and risk-appropriate cut-off limits for individual competences in the front office in place. The front office is also responsible for ensuring consistent risk/return-oriented management of the portfolio.

1) Prior to the Eurohypo risk umbrella of €35m and after the 2005/2006 restatement. 72 MANAGEMENT REPORT

We are confident that we can gradually reduce the run rate of the provision for possible loan losses in the white portfolio on a lasting basis. Together with the calculable significant reduction of approximately one-third in the regulatory capital requirements under Basel II, we consider that we are now well positioned for the retail lending business. We aim to play a leading role on the German retail lending market with this efficient business model.

• We completed the etec efficiency project in the Corporates & Markets operative credit function in 2006. One consequence was the creation of a system whereby individuals can take decisions about SMEs on the basis of a ”rating navigator” which forms part of a traffic light system; the amber section of this traffic light system (requiring dual control) was concentrated in one location in Dresden for the whole of Germany. A centre of competence with global responsibilities along sectoral lines was set up in Frankfurt for major companies; structured finance activities were also concentrated in Frankfurt.

• The well-established CRE & Public Finance operative credit function structures were extended across the whole Group. By bundling the Corecd property management business with the Eurohypo subsidiary Casia into a single property management unit called EH Estate Management under the Com- mercial Real Estate & Public credit function, Commerzbank is demonstrating the growing significance of this field to the Group.

• In line with its three corporate divisions, the Bank now has three operative credit function units for credit risk management and these have been merged with Risk Control in the Group Management division. As required under MaRisk, this reflects the fact that credit risk management plays the leading role in managing the loan portfolios of the front office units in a risk-appropriate manner and is responsible for sending clear signals on origination and secondary market activities. We in turn take account of this by rigorously measuring the performance of the operative credit function units, primarily by tracking the change in the delta of gross income and expected loss and the deviation between budgeted and actual figures in the provision for possible loan losses.

• Prevention and workout units were set up within the three operative credit function units, each as a separate area under the same name – intensive care; we expect this too to lead to better results-oriented management. The intensive care function aims wherever possible to develop practical strategies for keeping transactions afloat and only to unwind them when these are not sustainable or fail. In this process, reducing the volume of defaults is not a goal in itself: much more important is the optimization of recoveries. With real estate making up such a high proportion of defaults, the foreseeable market trend on the German real-estate market plays an important role in our workout strategy. The ”Guidelines for Constructive Cooperation When a Company is in Crisis”, which we helped to develop as part of the Finanzstandort Deutschland (IFD) initiative, provides evidence of our customer orientation. RISK REPORT 73

• We achieved all of the main targets that we had set for 2006 under the Basel II project. The Federal Financial Supervisory Authority BaFin carried out the first wave of certification of the Advanced Internal Rating Based (AIRB) approach for the loan portfolio between October 2006 and January 2007. Now that we have applied for authorization to use the Advanced Mea- surement Approach (AMA) for operational risks for the whole Group under Basel II, the certification audit has started at Commerzbank – the first bank in Germany. A second part to the audit is due in the first half of 2007.

• The regulatory authority completed its review of the internal market risk model for the trading book in the first half of 2006. It confirmed the quality of the model by lowering the multiple used to calculate the equity required to a figure that compares very well with other big banks.

• As part of its medium-term planning Commerzbank has set up an overall risk strategy that satisfies the requirements of MaRisk with sub-strategies for all significant risks and subjected it to a test of its consistency with the overall business strategy. Besides the credit risk strategy, we have laid down particular targets for the country risk strategy and the strategies for market risk, operational risk and for all unquantifiable risks. In so doing, we have ensured that our front-office units are given limits allowing for growth and sufficient ”breathing space”. It is now their responsibility to exploit these rigorously.

• As a consequence of MaRisk and the Solvency Regulation (SolvV), and also of the recommendations of the Committee of European Banking Supervisors (CEBS) that are key to advanced banks, there are significantly higher ongoing demands on risk control for a bank of our size. We have therefore decided from the beginning of 2007 to split Risk Control into two separate units: ZCE for credit risk and economic capital and ZMO for market and operational risk and overall risk strategy.

• We have brought together all the most significant key risk data for the Group for the first time in one of Commerzbank’s annual reports and presented them in a special Risk Management section in the Notes 75 to 83. The aim is to make communication of risk more focused, easier to understand and above all more appropriate for those reading it.

II. Risk-based overall Bank management

1) Risk-policy principles The Commerzbank Group’s value-based and risk/return-oriented overall Bank management involves taking on identified risks and managing them professionally. Accordingly, the core tasks for Commerzbank risk management consist of identifying all the major risks within the Group and – as far as possible – precisely measuring these risks and managing the resulting risk positions. Commerzbank defines risk as the danger of possible losses or profits foregone, which may be triggered by internal or external factors. Risk management always distinguishes between quantifiable – i.e. measurable – and unquantifiable categories of risk. 74 MANAGEMENT REPORT

The Bank’s Board of Managing Directors defines risk-policy guidelines as part of the annually reviewed overall risk strategy for the Group which it has established and which consists of various sub-strategies for the main categories of risk. The overall risk strategy is based on the business strategy, which is also established by the Board of Managing Directors, so ensuring that the strategic orientation of the Group is in step with its risk management. Within the Board of Managing Directors, the Chief Risk Officer (CRO) is responsible for controlling all of the quantifiable risks (especially credit, market, liquidity and operational risks) of the Commerzbank Group and also for working out and implementing its overall risk strategy. As part of his responsibility at Group level for the credit function, the CRO also assumes the management function for all credit risks. The CEO bears responsibility for risks related to the Bank’s business strategy and reputational risks. The CFO assumes responsibility for compliance risk (investor protection, insider guidelines, money laundering, etc.). The Board of Managing Directors as a whole and the Risk Committee of the Supervisory Board are regularly informed about all of the major risks and the Group’s overall risk situation by means of structured risk reports. Events of material significance for the Bank’s risk situation are reported to decision- makers on an ad hoc basis. The central information and management tool at Group level for the Board of Managing Directors and the Risk Committee of the Supervisory Board is the Quarterly Risk Report (QRR) produced by Central Risk Control, in which trends in all of the quantitative categories of risk and the return on risk-adjusted capital (RoRaC) are presented. There is also a comparison between budgeted and actual figures with the portfolio goals and limits that have been formulated; any countermeasures are addressed immediately. We make sure that the risk functions are well-equipped with personnel in qualitative and quantitative terms; we constantly examine their efficiency using modern HR management systems and we subject them to rigorous performance scrutiny. The risk-management system is subject to continuous development as determined by the market and the regulatory authorities. It makes a substantial contribution to optimizing the risk and return structure of the Bank as part of our value-based management.

2) Risk-management organization Responsibility for implementing the risk-policy guidelines laid down by the Board of Managing Directors throughout the Group lies with the Chief Risk Officer (CRO). The CRO regularly reports to the Risk Committee of the Super- visory Board and to the Board of Managing Directors on the Group’s overall risk situation. In addition to being responsible for Risk Control, the CRO is also in charge of the credit function units throughout the Group. In parallel with the three operating divisions, the Bank has three operative credit function units, each run by a Chief Credit Officer (CCO). We implemented or introduced extensive organizational measures to raise the efficiency of these operative credit function units in the course of 2006: etec in Corporates, the establishment of a new operative credit unit in the Retail division as part of the Retail Credit project, the integration of Eurohypo’s operative RISK REPORT 75

credit function into the Group structures and the integration of the overall risk function into Group management. We want to continue along this path with the creation of a clear method of measuring performance and an unambiguous responsibility for adherence to budget by consistently separating the white from the grey and black areas in monitoring loans made by the front office. The demands on Risk Control in recent years have grown massively as a result of the quantitative management of parameters rolled out in all divisions, the high level of complexity, the mathematical/statistical modelling and validation required, and the mass of new regulatory demands (SolvV, MaRisk, etc.). With the ongoing high frequency of amendments and additions to the latter, demands will continue to grow: at the end of 2006 the regulators authorized the option to switch to the use of internal models for liquidity risk and move away from the old Principle II. Foreseeable developments include: a redefinition of the term equity (Basel III), closer attention to bulk and concentration risks (CEBS CP 11), stress tests (CEBS CP 12), and even, although this is not realistic until after 2010, regulatory recognition of economic capital models (Basel IV) and accompanying efforts to bring bank regulation closer into line with IFRS. In light of the above, Risk Control will be split into two separate Group staff departments in 2007 along the lines of the different risk categories: Credit Risk and Economic Capital Control (ZCE) and Risk Strategy/Market and Operational Risk Control (ZMO).

Board of Managing Directors Risk Committee of the Supervisory Board

Chief Risk Officer (CRO)

Risk Control Global Credit Risk Management

Credit Risk Risk Strategy/ Private and Corporates Commercial and Economic Market and Business & Markets Real Estate & Capital Control Operational Customers (ZCC) Public Finance (ZCE) Risk Control (ZCP) (ZRP) (ZMO)

The Board of Managing Directors has delegated tasks to specific committees under the CRO for the operative execution of risk management; these act independently within the competences specifically delegated to them and assist the Board of Managing Directors in making decisions on issues relevant to risk.

Committee Structure

Credit Country Risk OpRisk Market Risk Committee Credit Committee Committee Committee (KK) (LKK) (ORC) (MRC)

weekly quarterly monthly monthly 76 MANAGEMENT REPORT

In view of the good experience to date the power of the Credit Committee (KK) to make decisions was raised depending on the rating class, to up to 5% of the Bank’s equity in the case of the highest category; ”time-to-market” loan decisions are valuable to the Bank and the four representatives on the KK can also make decisions outside their weekly meetings when required. In accordance with the powers delegated by the Board of Managing Directors the KK is also responsible for monitoring the Commerzbank Group’s loan portfolio, adhering to the credit risk strategy, regularly checking the credit parameters under Basel II, delegating competences and observing the credit guidelines. The Country Risk Credit Committee (LKK) has been set up as a special credit committee under the same rules as apply to the KK. It decides/votes on issues related to country risk management and discusses trends in country ratings and key risk figures. The Operational Risk Committee (ORC) monitors changes in the level of losses incurred by the Bank and the ongoing development of the Basel II parameters for the internal op-risk model and is also responsible for enforcing the principles under Section 280 of the Solvency Regulation. The ORC checks the strategies and guidelines for treating unquantifiable risks and decides on them on behalf of the Board of Managing Directors. The Market Risk Committee (MRC) lays down value at risk (VaR) and stress limits taking the Bank’s risk capacity and expected business into account and ensures that they are monitored in a timely and risk/return-oriented manner. The MRC makes recommendations for action on behalf of the Board of Managing Directors and the Bank’s trading units, based on suitable stress and scenario analyses and taking all relevant market parameters into account. In all of the risk committees we give due attention to an appropriate delega- tion of competence with the aim of ensuring decisions are taken by people closely in touch with the markets. The Board of Managing Directors is always informed promptly of the Bank’s risk situation by ensuring that meeting minutes are circulated.

3) Group risk strategy The Group risk strategy, which will in future be updated on an annual basis, determines how the Group handles all quantifiable and unquantifiable risks, which are broken down in detail into the following sub-risk strategies. The unquantifiable risks are subjected to qualitative monitoring in conform- ity with pillar II of the Basel Accord and MaRisk. The individual quantitative risks are managed by setting target figures or fixing limits. Crucial figures for assisting the Commerzbank Group in managing risk here are the expected loss (EL – this is determined for default and operational risks and is based on the relevant risk parameters under Basel II), value- at-risk (VaR, especially in the daily monitoring of market price risks), the risk appetite (for monitoring the influence of risk positioning on medium-term volatility in profits) and the economic capital (= unexpected loss [UL]). Economic capital is distinguished from risk appetite by its significantly higher confidence level; the loss that must not be exceeded is measured with a probability of 99.95% and has to be covered by the disposable capital available for risk coverage RISK REPORT 77

Sub-Risk Strategies included in the Economic Capital concept

Market risik*) Credit Country (including Business Operational Risk Risk investment and Risk Risk real estate risk)

CRO

Sub-Risk Strategies for other Risks (especially unquantifiable risks)

Strategy for Reputa- Business Compliance Investment Workflow/ Personnel Legal IT Risk tional Strategy Risk Risk Organiza- Risk Risk Risk Risk tional Risk

Board Member CFO CIO CEO for Legal Matters

*) The market risk strategy also covers funding risks that do not form part of the economic capital concept.

when calculating the risk-taking capability. This confidence level equates to an A+ rating from Standard & Poor’s, the Commerzbank Group target rating. Eco- nomic capital covers default, market, investment, business and operational risks and also takes the correlations and diversification effects within and between the different risk categories into account. We believe it is mainly useful for checking risk-taking capability and managing concentration risks, and it will be gradually extended to the risk/return-oriented overall management of the Bank. The main feature in 2008, however, will be the regulatory capital requirement under Basel II and the ROE achieved on it; the Bank’s units need to become better acquainted with this new risk-sensitive concept and be able to check their strategic orientation on this new basis.

4) Risk-taking capability Calculation of the risk-taking capability based on economic capital is the second important pillar of overall Bank management, alongside integrated risk/return- oriented management based on expected loss and risk appetite. For this, the aggregate risk figure for the Bank as a whole (measured as economic capital) is set against the total capital available for covering risk. The objective of this comparison is to establish whether the Bank is in a position to anticipate potential unexpected losses without serious negative effects on its business activity and to cover them from its own funds. In accordance with Group guidelines, the capital available for covering risk must be 20% higher than the economic capital excluding diversification effects. Within the Bank’s overall risk strategy, the risk buffer requirement has been translated into specific targets for individual portfolios. The Bank maintained all of the buffers set in the year under review at all times. 78 MANAGEMENT REPORT

Commerzbank also applies a series of various stress tests simulating unfavourable economic and market scenarios and their effect on the Bank. The objective of this kind of observation is to ensure the Bank’s risk-taking capability, even under situations of stress.

Risk-taking capability for I Economic capital incl. diversification effects between risk categories Target I Economic capital – Credit risk buffer the Commerzbank Group Economic capital – Market risk I Σ18.7 2007 in € bn I Economic capital – Operational risk I Economic capital – Business risk I Combined stress tests for economic capital*) I Extreme stress tests for economic capital*) I Capital available for risk coverage Σ14.6 22% > 0% (= Reserve from currency translation + Other intangible assets + Consolidated profit forecast Σ11.9 36% > 10% + Revaluation reserve + Retained earnings + Capital reserve Σ9.5 49% > 20% + Subscribed capital 0.6 7.5 + Hybrid capital) Σ 1.0 60% > 30% 2.4

Capital available 5.4 for risk coverage (incl. subordinated capital) *) excl. diversification December 2006

Stress test and scenario analyses in respect of the various categories of risk are also gaining in importance for the management of the Bank.

5) Compliance For Commerzbank, it is especially important that its employees are people of integrity who observe the relevant laws precisely because they have to deal every day with highly sensitive customer data and information. The crucial point, therefore, is to prevent conflicts of interest from arising and to make sure that market manipulation and insider trading do not occur. The declared goals of compliance are to protect customers, investors, employees and the reputation of the Bank. Supervisory and capital-market regulations and the Bank’s internal rules are monitored centrally by Group Compliance (ZGC) with the aid of a monitoring system which covers both the Bank’s proprietary trading and transactions by employees.

6) Internal auditing Internal Auditing (ZRev) works on behalf of the Board of Managing Directors, free from instructions and external influence and as a unit independent of business processes and with responsibility for the Group as a whole. Internal Audit- ing also operates free from instructions in reporting and in evaluating the results of its audits. The instrument employed by Internal Auditing is risk-oriented audit planning. It assesses the systems for risk management and control and also for general management and monitoring, thus helping to improve them. As a consequence of the Solvency Regulation and MaRisk, Internal Audit’s auditing obligations have been significantly expanded. RISK REPORT 79

III. Risk management

1) Default risks Definition The risk of losses or profits foregone due to defaults by counterparties and also the change in this risk. Apart from this traditional risk, default risk also covers country risk and issuer risk as well as counterparty risk and settlement risk arising from trading activities.

Credit-risk strategy Building on the business and risk strategy, the Commerzbank Group’s credit risk strategy sets the framework for the medium-term orientation of the loan portfolio. The overriding goals are:

• identifying value drivers and reflecting them in the Bank’s business policy, and also reducing value destroyers; • supporting the overall Bank’s goal of maximizing return on capital while respecting its risk-taking capability; • selecting new and follow-up business from a risk/return aspect.

The credit risk strategy puts particular focus on growth in the business with private and business customers and the Mittelstand in Germany and in Central and Eastern Europe. With major companies and multinationals, our business focus is clearly on trading and investment banking products as part of the orientation of Corporates & Markets (ZCM). Following the integration of Eurohypo the commercial real estate business, which is focused on the major conurbations throughout the world, forms another cornerstone of our business policy. Our increased focus on emerging markets should enable us to provide professional assistance to our target customers as their regional and foreign trading business undergoes rapid change owing to globalization. The limitation of concentration and bulk risks and portfolio-oriented management in terms of timely identification of risks plays a crucial role for all target groups and products. In addition to the continuous monitoring process by Risk Control, there is regular reporting on adherence to the credit risk strategy in the form of the quarterly risk report (QRR). The Board of Managing Directors is consequently able to see significant deviations from the credit risk strategy promptly and initiate countermeasures in good time.

Internal rating system Rating methods form an integral part of risk measurement and risk management and are thus a core competence and forward-looking competitive factor for our Bank. Regulatory requirements such as the Solvency Regulation encourage the development of state-of-the-art rating systems by offering the opportunity to take such processes into account when determining capital requirements. Introducing and continuously improving these rating systems is by no means just a regulatory necessity, it is also in the Bank’s own interests: only by con- sciously taking measurable risks can we successfully operate our business over the long term. 80 MANAGEMENT REPORT

Commerzbank has used the opportunity provided by the structural changes in German and international lending and the changed regulatory provisions under the new Basel capital requirements to introduce an efficient, state-of-the- art technical structure to its rating procedures. This gives the Bank an opportunity to operate a better form of credit risk management by reducing the number of loan loss provisions and lowering the opportunity costs from missing out on transactions. Furthermore, putting the Bank’s loan commitments into reliable rating classes and having the ability to compare rating classes across the Group on the basis of PD (probability of default) and allocate them within a uniform master scale across the whole Group provides the basis for actively managing the portfolio. The increasing integration of ratings into the lending process and the significance of risk measurement for the management of the Bank as a whole place high demands on quality assurance. Besides checking the quality of the forecasts made using the Bank’s internal ratings, risk management must pay particular attention to continuously monitoring credit risk parameters and correctly applying and validating credit risk models and the functions in the credit process. The rating processes used at Commerzbank are categorized as follows:

Corporates Corporates Retail FI Sovereigns (value) (cash flow)

Scoring Mittelstand Specialized Banks Countries consumer loans (Germany) finance NBFI Municipalities Scoring Mittelstand Shipping mortgages (outside Germany) Commercial Real Rating business Large companies Estate (CRE) customers

Credit-approval powers In integrating Eurohypo we have standardized our credit-approval powers throughout the Group. Depending on the rating and credit exposure, all major credit decisions are taken under a committee structure applying uniform principles. On all committees, the front office and the back office are equally represented with two representatives each and the credit officer from the back office responsible for the portfolio is always in the chair; the latter cannot be outvoted on risk-related issues. The central body with credit-approval powers is the Credit Committee, which is chaired by the CRO and is responsible for all major credit decisions within predefined limits or else submits them to the Board of Man- aging Directors as a whole for a decision; this ensures a uniform credit policy. For decisions that do not need to be submitted to the KK, each division of the Bank has a credit sub-committee chaired by its own CCO. These are responsible for case-by-case decisions and monitoring within the terms of the powers delegated to them, and also for risk-appropriate management of their division’s loan portfolio, for keeping the KK and the divisions up to date by means of appropriate reports on current developments, and for predicting and immediately informing the KK of any discernible weaknesses in their portfolios. Smaller commitments may be approved by two loan officers; in what is known under MaRisk as ”non-risk-relevant” business, we make use of the option to RISK REPORT 81

delegate credit-approval powers to a single officer in the front office under the terms of a traffic light system. If the risk parameters for commitments indicate a heightened risk, they are allocated to the amber phase; this automatically ensures the attention of another officer from the operative credit side.

Adjustment to the calculation of the provision for possible loan losses under IFRS to Basel II parameters Commerzbank aims to adopt the Basel II valuation for its IFRS accounting to the greatest possible extent. The one-off provision in the income statement for 2007 announced on the occasion of our Investors’ Day in September 2006 was com- prehensively taken into account through a restatement in 2006. Accordingly we expect a net provision for possible loan losses in 2007 of no more than the operating pro-forma net LLP in 2006 of €637m. The restatement has increased the amount of General Loan Loss Provisions (GLLP) to cover risks from the performing loan book (including off-balance-sheet transactions) to €852m. It cannot be ruled out that consistent application of the Basel II parameters for determining the LLP may lead to higher volatility in the provisioning figure reported in the future. To a large degree, however, the calculation of LLP on basis of Basel II-parameters reported in the balance sheet will in connection with the disclosure required under Basel II increase transparency.

847 930 Net provision for 867 878 I One-off Retail possible loan losses 293 310 381 293 I Retail according to segments 637 585 I CRE in € m I Public Finance 306 326 292 I MSB 343 I C&M

33 186 148 33 29 28 229 159 128 128

-31 -11 -11 -69 before after pro forma reported in the restatement owing to IFRS balance sheet pro forma 2005 2006 prior to Eurohypo risk umbrella

In 2006 a switch was made to the calculation of incurred loss as part of the portfolio valuation allowances, from a backward-looking procedure based on historical allocations to specific loan loss provisions (SLLP) to a method derived from the Basel II system. This led to a retroactive decrease of the Group net LLP in 2005 of €20m to €847m and for 2006 of €15m to a pro-forma figure of €930m; the effect of the restatement on the LLP was different for the various segments. As the EL adjustment in 2005 led to an increase in the provisioning for CRE and Retail, Mittelstand and Corporates & Markets benefited both from the methodi- cal change and a decrease of EL. As we do not expect any overall increase of the Group’s EL in 2007, we also do not expect from an overall perspective any increase of the provision for possible loan losses as a result of higher portfolio valuation allowances for the performing loan book. 82 MANAGEMENT REPORT

Provision development The main features of the changes in the Group’s provision for possible loan losses in 2006 were the integration of Eurohypo, the related revaluation of the retail portfolio and the effects from the adjustment to the calculation of the provision for possible loan losses under IFRS to the Basel II parameters. A positive change in German and foreign corporate business as a result of higher releases of provisions at the same time as an absence of losses from bulk risks allowed us to again significantly reduce the operating pro-forma net LLP compared with the previous year. They decreased by €210m to a figure of €637m. The significant reduction for CRE is the result of a noticeable decrease of the inflow of new defaults from the performing loan book and a very pleasing result from workout at our subsidiary Corecd. Only in the retail segment the operating provision for possible loan losses remained at a high level as a result of the difficult overall conditions. We are very concerned that the ongoing upward trend in personal bankruptcies is unbroken; more than three million households are now over-indebted and seven million households are on the borderline to overindebtedness. Total lending as reflected in the balance sheet has almost doubled following the integration of Eurohypo and now amounts to €316bn. In integrating Euro- hypo, we made sure that uniform methods of valuation were applied throughout. The portfolios were analysed in detail and the Commerzbank und Eurohypo risk provisioning principles were brought into line. This led to a revaluation of the whole retail portfolio and the booking of a one-off provision in the amount of €293m in the third quarter of 2006. The one-off provision for Eurohypo (€99m) resulted from a wider interpretation of what constituted a default, while the reason for the increased provisioning in the CB portfolio (€194m) lay in a Basel II-based revaluation. Under our business strategy it has proved a dis- advantage in the mortgage lending business that we used to focus in the past on granting senior subordinated loans and passed on the first mortgages to specialized mortgage banks. Taking extraordinary items into account, net Group net LLP in 2006 thus amounted to a pro-forma figure of €930m (or €878m with Eurohypo accounted for at equity in the first quarter of 2006). This is €83m higher than the pro-forma

Provision development Commerzbank – old – Commerzbank

in € m Ratio gross (bp) 74 90 106 99 85 83 78 65 57 60 51

1,822 1,869 1,898 1,614 1,629 1,605 1,322 1,358 1,369 1,267 1,272 1,084 1,078 1,022 968 968 822 836 848 724 703 703 930 792 847 637 598 555 545 522 521 569 375

2000 2001 2002 2003 2004 2005 2006 2006 2005 2006 2006 incl. excl. incl. EH incl. excl. one-off one-off one-off one-off

Ratio net (bp) 33 46 74 66 52 32 35 23 25 29 20

Gross Release Net pro forma RISK REPORT 83

figure of €847m for 2005. Without the one-off provision in in the retail segment of €293m, the operating provision for net LLP in 2006 decreased by €210m to €637m, so the trend is distinctly positive. The gross LLP shown in the table includes both the provisioning for new cases of default (the ”run rate”) and the provisioning for default exposures that already existed at the beginning of the year under review; there were also re- allocations related to products and specific borrowers which increased both the LLP as well as the amount of LLP releases. The figure shown does therefore not give the all-important run rate on the performing loan book as a result of new defaults. The gross LLP amounted to €1,059m in 2006 (excluding Eurohypo’s one-off provision of €99m owing to the wider interpretation of what constituted a default), which was on a par with the expected loss for the Bank’s loan book. This demonstrates that the quality of the Bank’s method for determining expected loss is now at a high level and that we are able to provide good qualitative forecasts. The provision for possible loan losses of the ”old” Commerzbank, i.e. excluding Eurohypo but including the one-off provision in Retail (of which €194m was accounted for by the old Commerzbank) increased by €48m to €569m. The main reason behind this modest increase was the significant swing in the provisioning at Corecd: it amounted to €120m in 2005 and decreased to a net release of €24m in 2006, producing a delta of €144m. If we eliminate the one-off provision for Retail in the old Commerzbank, this figure actually decreased by around €150m to €375m net. The pro-forma net ratio of LLP to loans drawn2) (€372bn as at December 2006), which forms the basis for our internal risk management, decreased year- on-year in the Commerzbank Group by 23bp to 17bp, if the one-off provision on Retail is not taken into account. This positive change is also reflected in the results of the individual segments: for Commercial Real Estate, the ratio was halved from 42bp to 21bp, at Mittelstand, it decreased from 22bp to 17bp and for the retail segment it improved from 59bp to 50bp, excluding the one-off. As part of the retail credit project we have introduced measures to further reduce this ratio over the next few years.

Risk coverage in the default portfolio As part of the integration of Eurohypo, we have created a uniform definition of what constituted a default at the two banks. The new uniform default portfolio definition reflects our conservative attitude towards risk and leads to a higher default portfolio such that all provisioned exposures are now included. The default portfolio as at December 2006 amounted to €12.7bn (for the first time including the default portfolios of BRE Bank and Essen Hyp). Default portfolio is covered with collaterals of just under €4.4bn and specific valuation allowances amounting to €7.0bn which is risk coverage including collateral of 89%, or 55% excluding collateral. These ratios do not take into account the portfolio valuation allowances for the performing loan book (on- and off-balance sheet), which had increased by the end of 2006 to an impressive figure of €852m (on-balance sheet portfolio valuation allowances of €661m and portfolio valuation allowances for the off-balance sheet lending business of €191m).

2) Loans drawn = total lending (on balance) + reverse repos + interbank money-market transactions. 84 MANAGEMENT REPORT

Volume of defaults as of 31.12.2006 in € m 4,351

12,728

7,016 2,530 686 5,281 1,135 4,005 3,442 2,471 2,486 2,059

Group CIB CRE Retail

I Default volume (performing and non-performing loans) I Provisions for possible loan losses (excl. portfolio valuation allowances) I Collateral

Modelling and quantifying credit risk All credit risks are aggregated at the portfolio level with the aid of the internal credit-risk model. By providing key figures, this model is one of the bases for risk monitoring (especially for managing bulk risk), portfolio management and monitoring country risk and credit-risk strategy. The key result is the distribution of losses, which allows forecasts to be made on the probability of the possible extent of losses in the lending business. From this we calculate both the expected loss (EL) and the unexpected loss (UL). There are a host of risk factors and parameters included in the credit risk model that are closely linked to the parameters for Basel II. The risk of borrowers defaulting (probability of default, or PD) is derived from the rating systems; values have to be estimated for the forecast exposure at default (EaD), which are derived by aggregating the various types of credit (e.g. unused lines, guarantees, letters of credit, etc.) according to their statistically determined credit conversion factors or CCF. Collateral, guarantees and netting agreements are valued using their statistical parameters and the resultant unsecured exposures weighted according to historical recovery rates to produce a commitment’s loss given default or LGD. Sector correlations and diversification effects are also taken into account. As part of the ongoing development of the model, we revised

Commerzbank

Overall Bank management Business/process optimization

Rating Equity Economic Risk Pricing/ Processes method Regulatory capital provisioning managing Efficiency being the requirements Crucial Harmonization the business projects benchmark Basel II management IFRS/Basel Pre-calculation MaRisk figure tools Pillar II / III

Basel II parameters PD / LGD / WGF / CCF RISK REPORT 85

the input parameters for the risk calculations in 2006; we integrated the statisti- Allocation of expected loss cal procedures for estimating collateral proceeds and recovery rates imple- from credit risk in the mented under the Basel II project into the model. Under Basel II the capital banking book by segment requirement each portfolio class is calibrated based on EL, which is the product within the Bank of the three core parameters PD, EaD and LGD. It is obvious that managing credit as of 31.12.2006 risks in a modern big bank is nowadays no longer possible without the complex quantitative know-how of modelling experts.

Limiting concentration and bulk risks

The goal and benchmark in the Group’s targeted monitoring of credit risk is the €1,012m risk/return-based target portfolio set down in the credit-risk strategy and the associated sub-portfolios of target groups and markets. Concentrations of risk in bulks, countries, target groups and products are restricted by means of a traffic light system which takes the special characteristics of each segment into account. As a central element of risk policy, bulk risk I 29.0% Private Customers is managed using the economic capital concept; the principal factors here are I 1.0% Asset Management the granularity of the portfolio and the correlation assumptions in respect of I 27.5% Mittelstand segment-, sector- and country-specific factors of influence. I 9.2% Corporates & Markets Bulk risks are defined as applying to borrower units requiring economic I 27.3% Commercial Real Estate capital of at least €5m. Borrower units requiring more than €20m of economic I 5.3% Public Finance I 0.6% Others and Consolidation capital are not wanted in a long-term perspective and are systematically reduced, with recourse to modern capital market instruments such as CDSs if necessary. The high value attributed to limiting bulk risks may be seen in the fact that the Board of Managing Directors laid down in its own internal rules in 2006 that unanimous resolutions are required for any board-level credit decisions involving deployment of economic capital in excess of €10m (based on final take). The Bank’s calculation of country risk involves both transfer risks and the event risks determined by the politics and economics specific to a region that have an effect on a country’s individual assets. Country-risk management covers all the decisions, measures and processes which draw upon the information provided by quantifying risk and are intended to influence portfolio structure in order to achieve management goals. The newly created Country Risk Committee has been delegated primary responsibility for deciding on the Group’s strategy towards country risks and considering how to plan, manage and control them throughout the Group, and for fixing country limits. Opportu- nities in emerging markets are arising for all areas of business as a result of globalization, which is why we have thoroughly reviewed country risk management. Risk measurement/limitation and the rules for credit approval powers have been brought into line with the Basel II parameters EL and EaD and use of economic capital. These measures have laid the foundations for stronger participation than in the past in the opportunities presented by globalization through expanding our business into the emerging markets in a focused and risk-conscious manner. 86 MANAGEMENT REPORT

Regions of Sectors continue to be managed with the aid of a traffic light system. The foreign exposure colours for the various sectors are worked out using key internal and external as of 31.12.2006 sector data taking into account the historical performance of the sectors, the quality of the current loan portfolio and a sector overview. We make targeted use of the Bank’s research facilities for sector-oriented risk management. Having rigorously reinforced the management of bulk risks in the lending area, we are now focusing on limiting bulk risk from investments and in the

€237.4bn trading book.

Managing default risk arising from trading transactions The management of default risk resulting from trading transactions is based on MaRisk. Monitoring covers counterparty risk, issuer risk, and all the settlement I 77.5% Europe and Turkey risks resulting from trading activities. In quantifying the risk from trading I 14.3% North America transactions we focus on a forward-looking presentation using mark-to-market I 5.0% Asia/Pacific or mtm, and dynamic add-ons such as simulation procedures to determine I 1.7% Caribbean financial centres the range of volatility of mtm. The risk-mitigation effects of netting agreements I 1.1% Middle East and North Africa are taken into consideration, as is the effect of collateral agreements. I 0.4% International organizations A limit system is used to monitor whether daily utilization remains within the I 1.1% Africa (excl. North Africa) set framework. This system is directly linked into the trading systems and I 0.4% Central/South America ensures that credit exposure arising from trading activities is monitored around the clock. The trading units establish whether free trading lines are available by means of a pre-deal limit check and may only carry out new deals to the extent that limits are free. Limit breaches are reported daily to management. In addition to this daily reporting, management is informed monthly about the largest off- balance-sheet transactions. Risk reporting also includes regular portfolio reports devoted to certain groups of counterparties and is complemented by an assessment of limits and exposures by type of business, maturity, counterparty category and class of risk. A graduated procedure ensures that overdrafts are brought back within set limits. In view of the high quality of our counterparty and underlying risk, cases of default as a negative factor affecting the trading result again played an insignificant role in 2006.

Business with non-banking financial institutions Private equity finance and hedge funds take up a relatively small share of the Commerzbank portfolio. This area is nevertheless a focus for our risk monitoring and limitation as we expect the business and the associated risks to grow further over the next few years. In the case of hedge funds there is a uniform risk policy throughout the Group specially formulated for these customers. Careful due diligence investigations into our business partners, collateral agreements with margin requirements, specific stress tests and prompt reconfirmations are at the heart of this policy. The guidelines in the Corrigan Report provide important assistance in limiting risk. We are an active player in underwriting leveraged acquisition financing for private equity funds, thanks to our competitive specialized finance ratings and good, in-depth analytical expertise. At the final take we concentrate on the less risky senior tranches and ensure that portfolio management aims for granularity. The total volume of our portfolio is currently well below 1% of RISK REPORT 87

total Group lending. We carefully evaluate the in-depth business plan of each individual commitment using base-case and downside-case scenarios; we pay special attention to sustainable financing models and financial covenants.

Use of credit derivatives For Commerzbank, the use of credit derivatives represents a central instrument for transferring credit risk. The Bank is successful in proprietary trading as a market maker for credit default swaps (CDSs) and also offers its customers structured credit derivative products. Commerzbank draws upon the expertise gained in proprietary trading to make selective use of the instruments as a credit surrogate in the banking book, thus enabling it to tap extra potential revenue in the form of risk/return-optimized earnings. These instruments are also employed on the basis of publicly available information for hedging to systematically reduce risk. Commerzbank uses credit derivatives to selectively manage risk and to diversify the portfolio in line with its credit-risk strategy. We only enter into credit derivative transactions with first-class counterparties; hedge funds play an insignificant role.

2) Market price risks Definition Market price risks encompass the risks of losses from changes in market prices (interest rates, spreads, exchange rates, share prices, etc) or parameters influ- encing prices, such as volatility and correlations. In Commerzbank’s definition, risks from equity investments in the banking book and equity event risks (modelling equity risk beyond VaR, e.g. to cover the insolvency of an issuer) also represent market risks. We also keep an eye on market liquidity risk, which covers cases where it is not possible for the Bank to liquidate or hedge risky positions in a timely manner and to the desired extent as a result of insufficient liquidity in the market.

Risk management and monitoring We monitor market prices risks from centralized controlling units within ZMO that are independent of trading activities. The operational management of market price risks is the responsibility of the business concerned. The latter enter into market price risks within predefined limits and trading authorizations with the aim of generating income. Market risk is managed by means of a sophisticated system of limits, combined with proven and optimized methods for measuring risk. Commerzbank takes account of economic capital required (risk-taking capability) and business expectations in establishing its market-risk limits, ensuring a risk/return-based management of market price risk. The extent to which the limits are used and the relevant P&L figures are reported daily to the Board of Managing Directors and the various heads of divisions. 88 MANAGEMENT REPORT

Percentage distribution Measuring market risk with our internal model of market risk In line with market standards and regulatory requirements, Commerzbank as of 31.12.2006 calculates its market risks using value-at-risk. At Commerzbank AG, foreign 99%, 10 days branches, and the Luxembourg subsidiary CISAL we use an internal model to calculate the equity capital required to back general and specific market risks. We intend to apply for additional subsidiaries to be included in this internal model in the future. The regulatory authorities confirmed the suitability of Commerzbank’s inter-

€112m nal market risk model on the occasion of an audit held during course of the year and significantly reduced the factor for backing market risks with equity, to a factor of 3.3.

Stress testing and scenario analysis I 39% Credit spread risk Since the value-at-risk concept provides a forecast for possible losses under I 43% Interest-rate risk ”normal” market conditions, Commerzbank supplements this by calculating I 13% Equity risk stress tests applied throughout the Group and scenario analyses for specific I 4% FX risk parameters to cover possible extreme scenarios. I 1% Precious metal risk Stress tests and scenario analyses are intended to simulate the impact of crises, extreme market conditions and major changes in correlations and volatilities. As part of our daily reporting, stress tests are applied that are individually adapted to the risk factors in the various portfolios in each area of business. Stress tests performed across portfolios simulate the impact of historical and conceivable future crisis scenarios on the Group as a whole. These are supplemented by specific monthly analyses for each investment category (interest-rate, equity, FX and credit spread scenarios). In the case of interest-rate risks in the banking book, the effects of both parallel shifts and changes in the steepness of the yield curve are simulated; with credit spread changes, various scenarios linked to the rating structure are tested. We also consider whether the effects have an impact on the income statement or the revaluation reserve or whether they will only show up in the income statement in later years (i.e. they present opportunity costs).

Changes in market risks From a market risk point of view, the integration of Eurohypo in the year under review had only a relatively low influence on Group risk, as the Eurohypo trading positions were of secondary importance compared to those of Commerzbank. In the course of the year, market risks in the trading book – measured at a confidence level of 99% and a holding period of 10 days – were reduced by €9.2m to a VaR of €30.0m, mainly due to a reduction in proprietary trading positions held by Treasury. When the interest-rate risks in the banking books are included in the value- at-risk (99% and 10 days) as at year-end amounted to €111.7m, which underscores the importance of managing and monitoring these positions. We shall be applying further efforts in this regard, given the desire to move towards economic fair-value methods. RISK REPORT 89

Investment risks Before new investments are acquired, opportunities and risks are analysed by means of due diligence measures, while existing equity investments are managed on the basis of regular reports from the companies in question. At the same time, the market risk stemming from the Bank’s listed equity investments is monitored daily – as with the calculation of trading positions – by ZMO and reported regularly, together with the risk from non-listed investments, to the Board of Managing Directors. As larger investments are comparable from a risk point of view with bulk risks in the lending area, we pay special attention to the monitoring carried out by those responsible for investment and risk management in order both to limit the economic capital requirement for individual investments and to avoid any significant effect on the revaluation reserve or the Group’s income statement.

3) Funding risks Definition Funding risk is the term for the risk of the Bank not being able to meet its current and future payment obligations as and when they fall due (liquidity risk). Ensuring that Commerzbank is solvent at all times, even in crisis situations, is the task of Group Treasury (ZGT). Measuring and monitoring across the Group is carried out by ZMO. Managing funding risk is carried out beyond just the figures required by regulatory provisions (in the year under review, as required for Principle II); these are calculated by Accounting and Taxes (ZBS) on a differentiated system of limits provided by ZMO using the concepts of available net liquidity and stable funding. Both aim to manage liquidity efficiently management and avoid liquidity bottlenecks. Using available net liquidity it is possible to determine future funding requirements based on cumulative liquidity available in the future, adjusted for the expected effects on liquidity of decisions relating to business policy and customer behaviour. Utilization limits are set and monitored under a basic scenario reflecting current market conditions, and also under stress scenarios. Stable funding calculates the liquidity requirement for the Bank’s core lending business and assets that cannot be liquidated within one year, and compares these to the liabilities available for a term longer than one year (including the stable base of customer deposits). The aim is to finance the Bank’s illiquid assets and core business as far as possible with long term liabilities. In addition, ZGT maintains liquidity portfolios in the leading currency centres. The sizes of the portfolios reflect the results of the stress scenario calculations. BaFin allows the authorization of internal funding risk models under the Liquidity Regulation (LiqV) that will replace the old Principle II from 2007 onwards. Commerzbank is preparing systematically for this and intends to apply for approval of its model by the end of 2007. 90 MANAGEMENT REPORT

4) Operational risks Definition We define operational risk as the risk of losses through inadequate or defective systems and processes, human or technical failures or external events such as system breakdowns or fire damage. By analogy with the Basel Committee’s definition, this also includes legal risk, i.e. risks stemming from inadequate contractual agreements or changes in the legal framework.

Risk management and monitoring The Operational Risk Committee is regularly informed about the risk situation. Responsibility for the implementation of measures at the operational level to reduce risk lies with the individual Group units. To manage these risks the Bank has set up an independent central unit within ZMO, the responsibilities of which are clearly defined under to Section 280 of the Solvency Regulation for banks using the advanced approach under Basel II: ”This unit is responsible for developing the strategy, principles and procedures for identifying, measuring, monitoring and reporting operational risks and developing processes for managing these, and is in charge of implementing and applying them.”

Measuring operational risks with the AMA model Expected loss from The stability, quality and information value of the mathematical-statistical model operational risks were improved further in the year under review and its depth was increased. The as of 31.12.2006 link to the external ORX database plays an important role in the adequate inclusion of unexpected losses in the model. To enable us to estimate the financial risk in the event of infrequent major losses, we strengthened the scenario analysis in major Group units. The example of Heros, the cash-transport company, which cost Commerzbank approx. €16m, shows that such extreme scenarios can become reality. The analyses are €50m directed at pursuing measures to reduce risk. This led, in the Heros case, to us finding a more stable solution for the future by diversifying risk through the addition of two more cash-transport companies and an appropriate insurance policy. Actual losses in 2006 (greater than €5 thousand per individual case I 1.7% Internal fraud including provisions for legal risks) came to a total of €52.6m, slightly higher I 18.0% External fraud than the expected loss for the Commerzbank Group that currently stands at I 2.9% Employment practice and job security €50m (€47m as at December 2005). The unexpected loss from operational risks I 21.8% Customers, products and came to around €1,044m at the end of 2006, with the EL/UL ratio of 1:21 show- business practices I 0.7% Material damages ing how important the avoidance of major risks is in the prevention of losses. I 5.0% Interruptions to business We are gradually optimizing the use of insurance policies against losses to limit and systems crashes I 50.0% Execution, delivery and UL as part of the OpRisk concept. process management The Bank introduced a bonus-malus system for incentivization and as an additional qualitative valuation tool for managing operational risks. This gives management incentives to reduce operational risks and improve risk management for the Group’s organizational units. Owing to the measures taken, we largely succeeded in holding the level of the Group’s operational risk in the year under review despite integrating Eurohypo. RISK REPORT 91

Legal risks The modelling of operational risk also incorporates legal risks. These currently account for around 30% of operational risk. The management of the Commerz- bank Group’s legal risks worldwide is entrusted to Legal Services (ZRA). The central function of ZRA is to recognize potential losses arising from legal risk at an early stage, to devise solutions for reducing, restricting or avoiding such risks and to make the necessary provisions. In this connection, ZRA produces guidelines and standard contracts for the entire Group, which are implemented in close cooperation with business lines, branches and subsidiaries. The largest legal proceedings against the Commerzbank Group are presented to the Board of Managing Directors and Supervisory Board at regular intervals in the form of individual case analyses. A growing readiness can be noted throughout the world in the financial sector to press customers’ claims through legal action. This is also being encouraged by the ever more complex regulation of the financial markets, with constant additions to banks’ catalogue of duties.

Personnel risks In line with MaRisk, Commerzbank defines personnel risks under four categories:

• Aptitude risk: Employees and those standing in for them must have the required knowledge and experience appropriate to their duties, authority and responsibilities. Appropriate training measures should ensure that the level of employees’ qualifications keeps up with the state of developments.

• Motivation risk: The pay and incentive systems must be designed such that they do not lead to conflicts of interest or disincentives, especially in the case of senior managers.

• Risk of leaving: The absence or departure of employees should not lead to lasting damage to the operating workflow. The criteria for appointment to all positions, especially those of managers, must be laid down.

• Bottleneck risk: The quantitative and qualitative staffing of a bank must reflect in particular its internal operating requirements, business activities, strategy and risk situation.

Responsibility for dealing with personnel risks lies with the Bank’s management. Personnel risks will be reported by ZPA from the second quarter of 2007 as part of a newly developed process (HR Cockpit).

Business contingency and continuity planning In order to ensure that banking activities are maintained and to reduce losses arising from serious interruptions of its operations to a minimum, the Bank has business contingency plans in written form. The responsibilities of the different head-office departments and individual units are monitored in a Group-wide central business contingency policy, with supplementary regulations for the IT and Organization departments. 92 MANAGEMENT REPORT

Outsourcing The Bank reinforced its measures for controlling its outsourcing activities in the year under review. The focus of our work in 2007 will be on the implementation of new requirements resulting from the revision of regulatory provisions and their codification in MaRisk. Particular emphasis will be put on actively tying this into the Bank’s risk diversification and monitoring.

5) Business risks Business risk encompasses the risk of losses due to negative deviations in income (especially commissions and interest income) and expenses from the budgeted figures. It is influenced by business strategy and the Bank’s internal planning process, and also by changed overall conditions such as the market environment, customer behaviour and technological developments. As part of the ongoing development of the model, the intention is to model business risks through a complete economic cycle. By reporting their business risk, which is also a component of economic capital, divisions and subsidiaries are encouraged to continuously improve their planning processes and the management of their operations. This helps to validate the financial planning of the whole Group and facilitates the internal allocation of capital on the basis of risk and return.

6) Unquantifiable risks To meet the Pillar 2 demands of the new Basel Framework, MaRisk requires a holistic view of risk and hence consideration of unquantifiable risks such as reputational risks. As adequate quantitative modelling of these risks is impos- sible, they are subject to a qualitative management and controlling process.

Strategic risk Strategic risk represents the risk of negative trends in income on account of previous or future fundamental business-policy decisions, produced by investment decisions in various business lines or regions (such as internal/external growth or disinvestments). Responsibility for the strategic management of Commerzbank lies with the Board of Managing Directors, with support provided by Strategy and Controlling (ZKE) in the case of strategic issues. Some business-policy decisions – e.g. the acquisition and disposal of equity holdings exceeding 1% of the Bank’s equity – also require the approval of the Risk Committee of the Supervisory Board. All major investments are subjected to a thorough review as part of an investigation carried out by the Investment Resources Committee (IRC). Based on constant observation of the German and international markets and competitive environment and the requirements imposed by the regulatory authorities and the capital markets, key changes and developments are continuously analysed to determine any action that needs to be taken to ensure the Company’s long- term success. RISK REPORT 93

Reputational risk By this we mean the risk of losses, declining income or a reduction in the Bank’s market value on account of business transactions and other events that erode the confidence the public, rating agencies, investors and business associates place in the Bank. In their daily activities the operational divisions, branches and subsidiaries bear direct responsibility for reputational risk arising from their particular business. Reputational risk can stem from other types of risk and even accentuate these. For this reason, all business-policy measures and activities are subjected to careful scrutiny. In particular, Commerzbank avoids business-policy measures and transactions which entail significant tax or legal risks, and also environmental risks. The responsibility of Central Communications (ZKK) for monitoring this ensures the Bank is aware of market perceptions at an early stage. Our communications department votes on all major credit decisions in respect of their reputational risks and there are also guidelines, for instance on the environmental sustainability of financing transactions.

Compliance risk Compliance risk encompasses legal and regulatory sanctions or financial losses due to failure to comply with laws, regulations, guidelines or organizational standards and codes of conduct which have a bearing on Commerzbank business activities. This relates to the prevention of money laundering, the protection of data and business confidentiality, investor protection and observing the provisions of the German Securities Trading Act. Compliance implements compliance-related legal/regulatory requirements jointly with the specialist departments concerned. The Markets in Financial Instruments Directive (MiFID) should be mentioned at this point: this will be implemented within the Bank by November 2007. MiFID sets new standards for securities trading and affects virtually the whole length of the securities-trading value chain at Commerzbank. MiFID affects adherence to market standards, best execution of customer orders, management of conflicts of interest and fair and appropriate investment advice to our customers. Compliance also monitors adherence to the internal standards the Bank has laid down for its employees, to ensure that they take no part in transactions that are aimed at evading laws, regulations or directives. Accordingly, the definition of the term ”compliance risk” goes beyond legal provisions and also encompasses issues of integrity and ethics. Supervisory and capital-market regulations and the Bank’s internal rules are monitored centrally by Group Compliance (ZGC) with the aid of a sophisticated monitoring system which covers both the Bank’s proprietary trading and transactions for employees. Compliance officers help to identify and resolve conflicts throughout the Group, especially on the investment side. An organizational system of Chinese walls helps to ensure that confidential or price-sensitive information is not compromised and potential conflicts of interest are kept to an absolute minimum. Employees are made aware of compliance-relevant topics through extensive training sessions, e.g. on money laundering. 94 MANAGEMENT REPORT

IV. Outlook

Changes in provisions for possible loan losses and expected loss Having completely switched our credit evaluation under IFRS to Basel II parameters in 2006, we expect a net provision for possible loan losses in a more relaxed environment in 2007 in the Commerzbank Group, in the most realistic case no higher than the operating pro-forma figure for 2006 of €637m (of course, despite the current favourable economic environment, a higher figure can never be completely ruled out in the downside case as a result of defaults in bulk risks). In the most realistic case, we expect a drop in the run rate in white loans to significantly below €1bn and a further improvement to the intensive care result in the black book. Even though we include only a slight drop in the expected loss in the banking book to below €1bn in our planning for 2007, we are still more than €300m below the expected loss, with a net provision for possible loan losses of less than €637m. The historically-low target figure of approximately 20 bp on total lending can therefore only be achieved by a sufficiently large positive contribution from all three intensive care areas. However the favourable figure expected for 2007 cannot simply be extrapolated forward into the years that follow. Besides the way the workout result develops, the general economic environment and the EL situation in the various areas of business will play a significant role when looking at the long-term perspective. We do not want to accept higher expected loss figures in individual areas of business though, unless this has a sustainable positive effect on net interest income after expected loss.

Basel II The main feature of 2007 will be the certification of the most advanced Basel II approaches for operational risks (AMA) and credit risk (AIRB). Based on our initial internal calculations we expect that compared to Basel I, under Basel II (which will become effective from January 1, 2008) there will be a modest fall in the regulatory capital adequacy requirement for the Group as a whole, even allowing for the new requirement to take account of operational risks in 2008. The Retail business and Commercial Real Estate will be the main factors behind this fall. It is pleasing to note that we do not foresee a noticeable rise in the capital adequacy requirement for any of the segments in the Group, although we cannot rule out strategic adjustments in sub-segments when it comes to implementing Basel II. For instance, from January 1, 2008 for the first time any externally-confirmed free lines of credit (differentiated by type and level of risk) will have to be backed by regulatory capital, so the issue of calculating appropriate commitment commissions will play a substantial role in the future. We see this development affecting the whole market, regardless of the Basel II approach selected. We shall not be applying for AIRB certification for some individual specialist portfolios (e.g. operating foreign subsidiaries, non-banking financial institutions, renewable energy) until 2008 and shall value them for the time being using the standard credit approach. We shall be developing an AIRB investment model in 2007 for the risks arising from the Bank’s investments, which we shall be sub- mitting for certification in 2008; existing investments will be ”grandfathered” until 2017. RISK REPORT 95

BRE Bank As BRE Bank is planning a further sharp rise in its lending over the next few years in the growing Polish market, it is important from a risk perspective that Commerzbank’s high standards of risk controlling and management are implemented in this business. To this end, Commerzbank will take the necessary steps in 2007 to continue building up the modern AIRB methods for managing risk in Poland; this is independent of the application for certification, for which we shall require the cooperation of the Polish regulatory authorities. We consider the complete integration of all foreign subsidiaries into the Bank’s processes and their full linkage into the parent company’s systems as a significant milestone in achieving prompt risk management and controlling across the Group.

Managing economic capital We foresee risk management increasingly developing in the direction of strategic asset allocation and economic capital becoming more and more established as the ”currency” for internal and external capital management; it has already become indispensable for monitoring risk-taking capability and bulk and concentration risks. We are confident that, in the long term it will be possible to use internal credit risk models for regulatory capital adequacy requirements and view ICAAP (the Internal Capital Adequacy Assessment Process, required by Basel II) and SREP (the Supervisory Review and Evaluation Process) as a good basis for taking the next steps in development jointly with the regulatory authorities. We have created the internal conditions to achieve this.

Intensive Care In developing an efficient intensive care function, we do not just see advantages in a lower provision for possible loan losses and better recoveries. The workout skill has a substantial influence on the Basel II parameters PD and LGD, and accordingly makes a significant contribution to a relatively favourable level of capital adequacy required under the AIRB approach. The three independent intensive care units within the three operative credit functions have been given clear performance hurdles related to their areas for 2007 with the aim of optimizing the intensive care result in a profit-centre-oriented way. High priority will be given to applying a cash-value, market-oriented approach to this.

Internal model for calculating liquidity risks With the new Liquidity Regulation coming into force on January 1, 2007 banks will have the opportunity to use their own liquidity risk measurement and management procedures (i.e. their internal liquidity risk model) to calculate liquidity risks. Commerzbank will do all that is necessary by the end of 2007 to apply for the Available Net Liquidity concept (ANL), which it has used internally for years, to be approved as its liquidity risk model. 96 MANAGEMENT REPORT

Interest-rate risk in the banking book In times of flat and sometimes even inverted yield curves it is difficult to achieve an adequate return in Treasury or in Public Finance with interest-rate positions. We set great store on creating uniform standards for measuring economic performance throughout the Group and plan to subject these more than in the past to management and monitoring with the aid of limits and stop-loss triggers.

Trading book Commerzbank’s exposure at default (EaD) of approx. €548bn consists of €491bn of exposure in the banking book and only €57bn of exposure in the trading book. The trading book’s share is thus relatively low compared to other banks of our size. This is why in future we shall take more advantage than in the past of both the opportunities for actively trading in credit and the secondary market. Credit valuations which are closely in touch with the market enable the Bank to benefit from broader diversification (e.g. by building up a portfolio in regions where it is not active as a relationship bank) and to gain new opportunities for business. Prompt valuation of assets strengthens the ability to identify problems at an early stage and has the effect of the default risk for liquid tranches of credit largely migrating to market risk.

Training and promoting future leaders The quality of risk management is a substantial factor in the income statement and critical to success, making it a decisive competitive factor for the Bank. Rapidly changing regulatory and market-related provisions have increased the requirements in recent years, both in terms of breadth (all-round knowledge) and depth (specialist know-how), to a degree that has not been known in the past. This also requires change processes which continually add to the level of qualification and identify both weaknesses and potential strengths at the earliest possible stage. The aim must be to define qualitative and quantitative gaps in coverage in a timely manner and fill these with highly qualified staff. Looking ahead we can see an even higher demand for ”quants”, i.e. employees with experience of risk modelling or who can acquire it based on their good existing mathematical and statistical skills. The proportion of these who are home-grown should clearly be in the majority and will be favoured by increased interchange between units of the Group. Achieving greater certainty in our planning and identifying and promoting top future leaders will in future be an explicit performance target for managers in risk management and to develop our human resources we intend to work more closely than before with leading universities. We see great advantages in obtaining a bachelor and/or master degree, in parallel with pursuing a career and intend to give our future managers support specifically to this end. RISK REPORT 97

Corporate Communications We are preparing for the increased significance of externally communicating about risk with supervision authorities, rating agencies and analysts which will result from Pillar 3 of the Basel capital regulations, the Solvency Regulation and the requirements of the CEBS Common Solvency Ratio Reporting (CoRep). Accordingly, all IRB banks will for the first time have to publish extensive information in accordance with uniform standards on the methods they use and their parameters for sub-portfolios from the end of 2008. We expect that there will be a massive need for explanations, which is already becoming noticeable on the part of external experts such as rating agencies and analysts. That is why the risk function must in future communicate in a more focused and more clearly comprehensible manner in order to avoid incorrect conclusions and misinterpretations. Risk management and controlling at major banks will continue to be subject to massive development processes and the aim in future will increasingly be to produce an optimum combination of modern, expert knowledge that is in touch with the market together with quantitative management of parameters. The risk functions of the future will increasingly have to bring their knowledge to bear not only in measuring risk and in reporting but also in managing the different types of risk, and thus will have an active influence on the Bank’s risk/return-oriented management and decision processes. The intention is to seize any profitable business opportunities within the framework of a modern risk monitoring system. A close link between business and risk strategy and intensive communications (consulting) with the front office are key for this to be successful.

Management by anticipation Basel II, the Solvency Regulation and MaRisk do not, of course, mean an end to further developments in risk management, since viewing risk has in the past been too one-sided in projecting the past forward into the future. This essential historical view needs to be supplemented by a significantly more forward-looking ”management by anticipation”; in other words, continuously analysing and forecasting external market factors and their effect on internal risk parameters in

Adjustment to the selection of 4. new business, portfolio management, capital management

1. Professional analysis and forecast Advanced stress and scenario of external factors (market, coun- analyses of individual portfolios Anticipation tries, sectors, liquidity, interest rates, and on an integrated basis spreads, currencies, share prices) 3.

Assessment of the risk parameters (e.g. PD/LGD/VaR 2. incl. volatility, speed and direction of change 98 MANAGEMENT REPORT

a professional way, which will then allow the results of stress tests and scenario analyses to be checked for their relevance to the market. From this point of view, it is important to value all portfolios consistently, taking account of risk, return and liquidity in a realistic and forward-looking manner. The aim is an anticipatory selection of new business and portfolio management and an equally anticipatory management of capital; that means a timely adjustment to the business we focus on when taking on or avoiding risks.

Risk management and control: a core competence for the benefit of all stakeholders The new Solvency Regulation and the full implementation of MaRisk involve an exceptionally high administrative input on the part of risk control and risk management in order to do justice to the very complex demands on a lasting basis. This applies especially to banks like Commerzbank which are aiming for the most advanced Basel II approaches (IRBA for credit risks and AMA for OpRisk) in order that they can enjoy the lowest and most risk-appropriate regulatory capital adequacy requirement on a lasting basis. But in the long term the related significant investments in risk management and controlling will pay off, not only as a result of the more favourable capital adequacy requirement but also, among other benefits, because:

• they are the basis for risk/return-oriented portfolio management and performance measurement, • they improve the opportunities to limit risks through timely identification of issues, • they create scope for efficiency in handling standardized transactions, • they are essential to consistent risk-adjusted pricing, optimizing the selection of business and strategically developing business lines, • they create value for all the Bank’s stakeholders; this has to be communi- cated in ways appropriate to those being addressed; specifically

for our customers:

• The risk of measuring and managing products, even complex ones, is essential to being able to continuously provide modern credit and capital market products at fair market prices. • Efficiently identifying upcoming risks and consistent rating communication to customers increases their survival chances in difficult times and reduces the number of insolvencies. The commitment that Commerzbank has given to communicate ratings to our customers has been mentioned in the rating brochure designed under our leadership as part of the IFD Mittelstand initiative. All IFD banks have now undertaken to make their ratings transparent to their customers. This makes customers more aware of their specific risk situation and encourages the market to heal itself. • Professional intensive care helps to develop sustainable strategies for carrying on a business and thus makes it easier for customers to restructure their loans. RISK REPORT 99

for our shareholders:

• Exploiting all the Bank’s opportunities for doing business by using efficient risk systems (e.g. precise ratings). • Optimizing returns through a risk/return-oriented focus as part of the internal allocation of capital. • Limiting/reducing reductions in income in normal business conditions, and especially during periods of economic or sector weakness. for our employees:

• Business strategies that are sustainable from a risk point of view prevent unexpected fluctuations in business strategy and hence contribute to long-term job security. • In an innovative environment we offer our employees the opportunity to participate in developing the most up-to-date risk-management systems and apply these to the Bank’s portfolio. The experience gathered in doing this is exciting and broadens their horizons, and also quite substantially improves their opportunities for personal development.

Alan Greenspan American Bankers Association Annual Convention, October 5, 2004

”It would be a mistake to conclude that the only way to succeed in banking is through ever-greater size and diversity.

Indeed, better Risk Management may be the only truly necessary element of success in banking.”

‡ rating-oriented advice ‡

”Decision-makers need to know how providers of capital assess the opportunities and risks for their companies and how they come to this assessment.”

Kai Werthmüller is head of the rating-oriented advisory project team and is currently working on further developing this successful advisory tool.

Rating-oriented Advice offers companies a full service for improving

their ratings. It shows companies valuation and related processes and ways of improving their valuation. This is important, as optimizing creditworthiness criteria helps entrepreneurs to play a role in shaping

the cost of their finance. It broadens their scope to make decisions and enables them to take steps in good time to secure the future of

their companies. Commerzbank helps them to implement these.

Kai Werthmüller Assistant Vice President, Corporate Banking.

102

financial statements of the commerzbank group as of december 31, 2006

Income statement 105 Balance sheet 107 Statement of changes in equity 108 Cash flow statement 110

Notes Consolidated accounting principles 112

Accounting policies (1) Basic principles 112 (2) Adjustments to the accounting policies, change in the provision for possible loan losses 113 (3) Consolidated companies 114 (4) Principles of consolidation 115 (5) Financial instruments: recognition and measurement (IAS 39) 115 (6) Currency translation 118 (7) Offsetting 119 (8) Cash reserve 119 (9) Claims 119 (10) Provision for possible loan losses 119 (11) Genuine repurchase agreements and securities-lending transactions 119 (12) Positive fair values attributable to derivative hedging instruments 119 (13) Assets held for trading purposes 120 (14) Investments and securities portfolio 120 (15) Intangible assets 120 (16) Fixed assets 120 (17) Leasing 121 (18) Investment properties and assets and divestiture groups held for sale 121 (19) Liabilities to banks and customers and securitized liabilities 121 (20) Negative fair values attributable to derivative hedging instruments 122 (21) Liabilities from trading activities 122 (22) Provisions for pensions and similar commitments 122 (23) Other provisions 123 (24) Taxes on income 123 (25) Subordinated and hybrid capital 123 (26) Trust transactions at third-party risk 123 (27) Treasury shares 123 (28) Staff remuneration plans 123

Acquisition of the majority interest in other companies 127 OVERVIEW 103

Notes Notes to the (29) Net interest income 129 income statement (30) Provision for possible loan losses 129 (31) Net commission income 130 (32) Trading profit 130 (33) Net result on investments and securities portfolio (available for sale) 131 (34) Other result 132 (35) Operating expenses 132 (36) Restructuring expenses 134 (37) Taxes on income 134 (38) Basic earnings per share 135 (39) Cost/income ratio 135 (40) Segment reporting 136

Notes to the Assets (41) Cash reserve 143 balance sheet (42) Claims on banks 143 (43) Claims on customers 143 (44) Claims on and liabilities to subsidiaries and equity investments 144 (45) Total lending 144 (46) Provision for possible loan losses 145 (47) Positive fair values attributable to derivative hedging instruments 147 (48) Assets held for trading purposes 147 (49) Investments and securities portfolio (available for sale) 148 (50) Intangible assets 149 (51) Fixed assets 149 (52) Changes in book value of fixed assets and investments 150 (53) Tax assets 151 (54) Other assets 151 Liabilities (55) Liabilities to banks 152 (56) Liabilities to customers 153 (57) Securitized liabilities 154 (58) Negative fair values attributable to derivative hedging instruments 155 (59) Liabilities from trading activities 155 (60) Provisions 155 (61) Tax liabilities 158 (62) Other liabilities 158 (63) Subordinated capital 159 (64) Hybrid capital 160 (65) Equity structure 161 (66) Conditional capital 163 (67) Authorized capital 164 (68) The Bank’s foreign-currency position 165 104 OVERVIEW

Notes Notes to (69) Derivative transactions 166 financial instruments (70) Use made of derivative financial instruments 170 (71) Assets pledged as collateral 170 (72) Maturities, by remaining lifetime 171 (73) Fair value of financial instruments 172 (74) Information on financial assets and financial liabilities in fair value option category 173

Risk management (75) Risk management 174 (76) Group risk strategy 174 (77) Risk-taking capability, expected and unexpected loss 175 (78) Default risks 177 (79) Market risk 179 (80) Operational risk 180 (81) Interest-rate risk 181 (82) Concentration of credit risk 181 (83) Liquidity ratio of Commerzbank Aktiengesellschaft (Principle II) 182

Other notes (84) Subordinated assets 183 (85) Contingent liabilities and irrevocable lending commitments 183 (86) Volume of managed funds 184 (87) Genuine repurchase agreements (repo and reverse repo transactions) and cash collaterals 185 (88) Securities-lending transactions 185 (89) Trust transactions at third-party risk 186 (90) Risk-weighted assets and capital ratios as defined by the Basel capital accord (BIS) 186 (91) Securitization of loans 188 (92) Average number of staff employed by the Bank during the year 190 (93) Remuneration and loans to board members 190 (94) Share-based payments plans 194 (95) Other commitments 197 (96) Lessor and lessee figures 198 (97) Letter of comfort 200 (98) Corporate Governance Code 201

Boards of Commerzbank Aktiengesellschaft 202

Group auditors’ report 203 105

income statement

1.1.–31.12.2006 1.1.–31.12.20051) Change Notes € m € m in % Interest received 18,841 12,522 50.5 Interest paid 14,925 9,355 59.5 Net interest income (29) 3,916 3,167 23.7 Provision for possible loan losses (10, 30, 46) –878 –521 68.5 Net interest income after provisioning 3,038 2,646 14.8 Commissions received 3,418 2,817 21.3 Commissions paid 557 402 38.6 Net commission income (31) 2,861 2,415 18.5 Trading profit2) (32) 1,177 685 71.8 Net result on investments and securities portfolio (available for sale) (33) 770 647 19.0 Other result (34) –14 26 · Operating expenses (35) 5,204 4,662 11.6 Operating profit 2,628 1,757 49.6 Restructuring expenses (36) 253 37 · Profit from ordinary activities/ Pre-tax profit 2,375 1,720 38.1 Taxes on income (37) 587 427 37.5 After-tax profit 1,788 1,293 38.3 Profit/loss attributable to minority interests –191 –106 80.2 Consolidated surplus (38) 1,597 1,187 34.5

Appropriation of profit 2006 20051) Change Notes € m € m in % Consolidated surplus (38) 1,597 1,187 34.5 Allocation to retained earnings –1,104 –859 28.5 Consolidated profit 493 328 50.3

The consolidated profit represents the distributable profit schaft. With 657,168,541 shares issued, this translates into of Commerzbank Aktiengesellschaft. The proposal will be an overall payout of €493m. Last year, a dividend payment made to the AGM that a dividend of €0.75 per share be of €0.50 per share was made. paid from the net profit of Commerzbank Aktiengesell-

Basic earnings per share 2006 20051) Change Notes € € in % Earnings per share (38) 2.43 1.97 23.4

The calculation of the earnings per share according to IAS/IFRS is based on the consolidated surplus, with minority interests not taken into consideration. There were no diluted earnings per share, since – as in the previous year – no conversion or option rights were outstanding.

1) After adjustment due to change in the provision for possible loan losses. 107

balance sheet

Assets 31.12.2006 31.12.20051) Change Notes € m € m in % Cash reserve (8, 41) 5,967 8,628 –30.8 Claims on banks (9, 42, 44, 45) 75,271 86,203 –12.7 Claims on customers (9, 43, 44, 45) 294,471 153,674 91.6 Provision for possible loan losses (10, 46) –7,371 –5,181 42.3 Positive fair values from derivative hedging instruments (12, 47) 6,979 4,734 47.4 Assets held for trading purposes (13, 48) 85,527 100,321 –14.7 Investments and securities portfolio (14, 49, 52) 135,291 86,208 56.9 Intangible assets (15, 50, 52) 1,680 973 72.7 Fixed assets (16, 51, 52) 1,388 1,525 –9.0 Tax assets (24, 53) 5,918 5,603 5.6 Other assets (17, 18, 54) 3,218 2,205 45.9 Total 608,339 444,893 36.7

Liabilities and equity 31.12.2006 31.12.20051) Change Notes € m € m in % Liabilities to banks (19, 44, 55) 125,825 129,900 –3.1 Liabilities to customers (19, 44, 56) 141,214 102,846 37.3 Securitized liabilities (19, 57) 228,753 96,920 · Negative fair values from derivative hedging instruments (20, 58) 14,119 9,839 43.5 Liabilities from trading activities (21, 59) 59,248 74,999 –21.0 Provisions (22, 23, 60) 3,346 3,685 –9.2 Tax liabilities (24, 61) 4,127 3,706 11.4 Other liabilities (18, 62) 1,582 1,337 18.3 Subordinated capital (25, 63) 11,274 8,143 38.5 Hybrid capital (25, 64) 3,540 – · Equity (27, 65, 66, 67) 15,311 13,518 13.3 Subscribed capital (65) 1,705 1,705 0.0 Capital reserve (65) 5,676 5,686 –0.2 Retained earnings (65) 5,166 4,033 28.1 Revaluation reserve (14, 65) 1,746 1,995 –12.5 Valuation of cash flow hedges (5, 65) –381 –1,069 –64.4 Reserve from currency translation (6, 65) –143 –107 33.6 Consolidated profit 493 328 50.3 Total before minority interests 14,262 12,571 13.5 Minority interests 1,049 947 10.8 Total 608,339 444,893 36.7

1) After adjustment due to change in the provision for possible loan losses. 108

statement of changes in equity

Sub- Capital Retained Revalu- Valu- Reserve Consoli- Total Minority Equity scribed reserve earnings ation ation of from dated before interests capital reserve cash flow currency profit minority hedges trans- interests € m lation Equity as of 31.12.2004 1,546 4,481 3,383 1,600 –1,214 –192 150 9,754 1,269 11,023 Change due to adjustment of the provision for possible loan losses –154 –154 –154 Equity as of 1.1.2005 1,546 4,481 3,229 1,600 –1,214 –192 150 9,600 1,269 10,869 Consolidated profit 328 328 328 Allocation to retained earnings1) 859 859 859 Profits/losses – 106 106 Changes in revaluation reserve 395 395 –73 322 Changes arising from cash flow hedges 145 145 –64 81 Changes in currency reserve 85 85 85 Comprehensive income 2005 859 395 145 85 328 1,812 –31 1,781 Capital increases 150 1,177 1,327 23 1,350 Issue of shares to employees 1 8 9 9 Profits/losses in previous year – –81 –81 Dividend –150 –150 –150 Changes in companies included in consolidation and other changes2) 8 20 –55 –27 –233 –260 Equity as of 31.12.2005 1,705 5,686 4,033 1,995 –1,069 –107 328 12,571 947 13,518 Consolidated profit 493 493 493 Allocation to retained earnings 1,104 1,104 1,104 Profits/losses – 191 191 Changes in revaluation reserve –112 –112 –156 –268 Changes arising from cash flow hedges 682 682 91 773 Changes in currency reserve –36 –36 –36 Comprehensive income 2006 1,104 –112 682 –36 493 2,131 126 2,257 Capital increases – 25 25 Issue of shares to employees 1 8 9 9 Profits/losses in previous year – –106 –106 Allocation to retained earnings (minority interests) – 32 32 Dividend –328 –328 –328 Changes in companies included in consolidation and other changes2) –1 –18 29 –137 6 –121 25 –96 Equity as of 31.12.2006 1,705 5,676 5,166 1,746 –381 –143 493 14,262 1,049 15,311

1) After adjustment due to change in the provision for possible loan losses; 2) including change in treasury shares. STATEMENT OF CHANGES IN EQUITY 109

As of December 31, 2006, the subscribed capital of No use was made in the 2006 financial year of the Commerzbank Aktiengesellschaft pursuant to the Bank’s resolution of the Annual General Meeting of May 17, 2006, Articles of Association stood at €1,709m; it was divided authorizing the Bank to repurchase its own shares pur- into 657,168,541 no-par-value shares (accounting par suant to Art. 71(1) no. 8 of the German Stock Corporation value per share: €2.60). After the 1,582,726 treasury Act (AktG), for purposes other than securities trading. shares held by the Bank on December 31, 2006, are Other changes in retained earnings, the revaluation deducted, its subscribed capital amounts to €1,705m. reserve and the valuation of cash flow hedges relate to The Bank made use of the authorization resolved by changes in equity at associated companies which, in the Annual General Meeting of May 17, 2006 to purchase accordance with IAS 28, have to be shown on a pro-rata its own shares for the purpose of securities trading, basis with no effect on the net profit. pursuant to Art. 71(1) no. 7 of the German Stock Corpora- tion Act (AktG). Gains and losses from trading in the Bank’s own shares have no effect on the net profit. 110

cash flow statement

2006 20051) € m€ m Consolidated surplus 1,597 1,187 Non-cash positions in net profit and adjustments to reconcile net profit with net cash provided by operating activities: Write-downs, depreciation, adjustments, write-ups to fixed and other assets, changes in provisions and net changes due to hedge accounting 4,093 1,288 Change in other non-cash positions 2,749 –2,262 Profit from the sale of assets –770 –647 Profit from the sale of fixed assets 6 7 Other adjustments (net interest income) –3,916 –3,167 Sub-total 3,759 –3,594 Change in assets and liabilities from operating activities after correction for non-cash components: Claims on banks 10,932 516 Claims on customers –140,797 –3,397 Securities held for trading purposes –1,410 –370 Other assets from operating activities –4,746 –1,082 Liabilities to banks –4,075 14,470 Liabilities to customers 38,368 –2,218 Securitized liabilities 131,833 9,670 Other liabilities from operating activities –593 –159 Interest and dividends received (see Note 29) 18,841 12,522 Interest paid –14,925 –9,355 Income tax paid –546 –241 Net cash provided by operating activities 36,641 16,762 Proceeds from the sale of: Investments and securities portfolio 55,894 44,050 Fixed assets 334 66 Payments for the acquisition of: Investments and securities portfolio –104,227 –57,560 Fixed assets –1,212 –429 Effects of changes in the group of companies included in the consolidation Payments from the acquisition of subsidiaries 3,579 333 Net cash used by investing activities –45,632 –13,540 Proceeds from capital increases –10 1,364 Dividends paid –328 –150 Other financing activities (subordinated capital) 6,671 –733 Net cash provided by financing activities 6,333 481 Cash and cash equivalents at the end of the previous period 8,628 4,888 Net cash provided by operating activities 36,641 16,762 Net cash used by investing activities –45,632 –13,540 Net cash provided by financing activities 6,333 481 Effects of exchange-rate changes on cash and cash equivalents –3 37 Cash and cash equivalents at the end of the period 5,967 8,628 of which: Cash on hand 754 597 Balances with central banks 4,375 4,868 Debt issued by public-sector borrowers and bills of exchange rediscountable at central banks 838 3,163

Cash and cash equivalents includes additions in an amount of €124m from companies consolidated for the first time.

1) After adjustment due to change in the provision for possible loan losses. CASH FLOW STATEMENT 111

The cash flow statement shows the structure of and The net cash provided by financing activities covers changes in cash and cash equivalents during the finan- the proceeds from capital increases as well as payments cial year. It is broken down into operating activities, received and made with regard to subordinated capital. investing activities and financing activities. Distributed dividends are also shown here. Under net cash provided by operating activities, pay- We consider cash and cash equivalents to be the ments (inflows and outflows) from claims on banks and cash reserve (see Note 41), consisting of cash on hand, customers and also securities from the trading portfolio balances held at central banks and also debt issued by and other assets are shown. Additions to and disposals public-sector borrowers and bills of exchange eligible for from liabilities to banks and customers, securitized lia- rediscounting at central banks. Claims on banks which bilities and other liabilities also belong to operating are due on demand are not included. activities. The interest and dividend payments resulting As far as banks are concerned, the cash flow state- from operating activities are similarly reflected in the net ment can be considered not very informative. For us, cash provided by operating activities. the cash flow statement replaces neither liquidity plan- The net cash used by investing activities shows pay- ning nor financial planning, nor do we look upon it as a ments for the investments and securities portfolio as management tool. well as for fixed assets and payments for the acquisition of subsidiaries. The effects of changes in the list of consolidated companies are also recognized under this item. 112

notes

Consolidated accounting principles 10, 11, 12), as permitted. We do not anticipate any material consequences on accounting or measurement as a Our consolidated financial statements as of December result. 31, 2006 were prepared in accordance with Art. 315a (1) The standards and interpretations to be applied for of the German Commercial Code (HGB) and Regulation the first time in the financial year 2006 (changes to IAS (EC) No. 1606/2002 (IAS Regulation) of the European 19, 21 and 39 as well as IFRS 6 and IFRIC 4, 5, 6) had no Parliament and of the Council of July 19, 2002, together material effect on the consolidated financial statements. with other regulations for adopting certain international In addition to the consolidated balance sheet and the accounting standards on the basis of the International consolidated income statement, the consolidated finan- Accounting Standards (IAS) – and the International cial statements also include a statement of changes in Financial Reporting Standards (IFRS) – approved and equity, a cash flow statement and the notes. Segment published by the International Accounting Standards reporting and the reporting on risk management are to Board (IASB) and with their interpretation by the Stand- be found in the notes (note 40 and notes 75 to 83 respec- ing Interpretations Committee (SIC) and International tively). Financial Reporting Interpretation Committee (IFRIC). All The consolidated management report, including a valid standards and interpretations required for the separate report on the opportunities and risks related to financial year 2006 have been applied. future developments (risk report) pursuant to Art. 315 of We have not taken into consideration prematurely the German Commercial Code (HGB), appears on pages applying standards and interpretations which are to 70 to 99 of our annual report. be implemented only as from January 1, 2007 or later Unless otherwise indicated, all the amounts are (IFRS 7, 8 as well as the changes to IAS 1, IFRIC 7, 8, 9, shown in millions of euros.

Accounting policies The consolidated financial statements include values, which are determined on the basis of estimates and (1) Basic principles assessments, as permitted. The estimates and assess- The consolidated financial statements are based on ments used are based on past experience and other fac- the going concern principle. Income and expenses are tors, such as planning and – from the present standpoint – recognized on a pro-rata temporis basis; they are shown likely expectations or forecasts of future events. Esti- in the income statement for the period to which they mates are subject to uncertainties in particular in the may be assigned in economic terms. assessment of risk provisions for possible loan losses, We have applied IAS 39, together with the different pension obligations, goodwill, deferred taxes and fair classification and valuation principles prescribed by value measurement. this standard, in our accounting. Hedge accounting rules An asset is recognized in the balance sheet if it is are applied in the case of derivative hedging instruments probable that there will be future economic benefits for (further details may be found in note 5). the company, and if its purchase or production costs or Throughout the Commerzbank Group, uniform ac- another value can be reliably assigned a value. counting policies are used in preparing the financial A liability is recognized in the balance sheet if it is statements. All material fully consolidated companies probable that there will be a direct outflow of resources prepared their financial statements as of December 31, with economic benefits as a result of a present obligation 2006. and that the amount to be paid can be reliably assigned a value. NOTES 113

(2) Adjustments to the accounting policies, Income statement Published Adjust- Adjusted change in the provision for possible loan losses as of 31.12.2005 consolidated ments consolidated Basically, we have employed the same accounting financial financial € m statements statements policies as for the consolidated financial statements as of Net interest income 3,172 –5 3,167 December 31, 2005. Provision for Leased items now appear in the balance sheet under possible loan losses –566 +45 –521 other assets. The net results on hedge accounting are Taxes on income –409 –18 –427 shown under trading profit in the income statement. The Consolidated surplus 1,165 +22 1,187 two positions are listed separately in the notes. Allocation to As regards portfolio valuation allowances for lending retained earnings –837 –22 –859 business where specific allowances are not made, the Consolidated profit 328 0 328 following adjustments were made in the Group during the 2006 financial year in accordance with IAS 8: After these adjustments are accounted for, the result- We have corrected the portfolio valuation allowances ing profit per share is €1.97 for the 2005 financial year for Commerzbank AG and our subsidiary Eurohypo AG in compared to the profit per share of €1.93 reported last the current financial year in accordance with IAS 8.42. year in accordance with IAS 33. The off-balance-sheet business was included for the first There was an additional adjustment to the segment time in the calculation for both banks. Eurohypo AG has reporting for 2005. This related to the portfolio valuation also made adjustments following a calculation of the allowances that were retroactively increased in the incurred loss broken down by sub-portfolios with the segment Private and Business Customers by €58m and same default characteristics. reduced in the segment Mittelstand by €39m as well as Consequently, retroactive adjustments need to be in the segment Corporates & Markets by €19m. The made to the 2005 financial year, and these are listed prior-year practice of allocation by volume has been individually in the table below. Because Eurohypo AG superseded by a more exact allocation according to was still included in the 2005 consolidated financial losses. statements using the at equity method, the net interest Commerzbank AG’s process for calculating incurred income and the investments and securities portfolio are loss as part of the portfolio valuation allowances, which also affected. used to focus on past figures and the allocation of net risk provisions, was adapted during the 2006 financial Balance sheet Published Adjust- Adjusted year to a process derived from the Basel II schema. This as of 31.12.2005 consolidated ments consolidated change in process resulted overall in an improved esti- financial financial € m statements statements mate of the incurred loss as defined in IAS 8.36, in par- Investments and ticular for the banks sub-portfolio. The provision for securities portfolio 86,241 –33 86,208 possible loan losses was increased by €31m for the on- Tax assets 5,538 +65 5,603 balance-sheet lending business as a result and this was Provisions in charged to the income statement for the 2006 financial lending business 3,521 +164 3,685 year. We do not anticipate that this change in the esti- Retained earnings 4,165 –132 4,033 mate will materially affect profit or loss in future financial years. As of January 1, 2005, the investments and securities portfolio was adjusted by –€28m, the provisions in lending business by +€209m, tax claims by +€83m and retained earnings by –€154m. 114 NOTES

(3) Consolidated companies In addition to the 159 subsidiaries, we included in the Besides the parent bank, the consolidated financial state- 2006 financial year 33 special-purpose entities and 23 ments include 159 subsidiaries (2005: 115) in which non-publicly-offered funds in our consolidated financial Commerzbank Aktiengesellschaft directly or indirectly statements in accordance with IAS 27 and SIC-12. 12 spe- holds more than 50% of the voting rights or exercises cial-purpose entities and non-publicly-offered funds control. Of these, 86 have their registered offices in Ger- have been included in the consolidation for the first time: many (2005: 53) and 73 elsewhere (2005: 62). 374 subsidiaries and associated companies of minor • Asset Securitisation Programme for Insured significance for the Group’s asset and financial position Receivables Ltd. (ASPIRE), Dublin and earnings performance have not been included; • CoCo Finance 2006-1 plc, Dublin instead, they have been shown under the investments • HIE-Cofonds VI, Frankfurt am Main and securities portfolio as holdings in subsidiaries or • HIE-Cofonds VII, Frankfurt am Main investments. These companies account for less than • HIE-Cofonds VII, Frankfurt am Main 0.1% (2005: 0.2%) of the Group’s total assets. In the year • Kaiserplatz Purchaser No. 14 Limited, St. Helier/Jersey under review, 51 subsidiaries were included in the con- • Kaiserplatz Purchaser No. 15 Limited, St. Helier/Jersey solidation for the first time. • Kaiserplatz Purchaser No. 16 Limited, St. Helier/Jersey • KP CoCo Finance, Ltd., Jersey • AFÖG GmbH & Co. KG, Frankfurt am Main • KP Semper No. 1 Ltd., St. Helier/Jersey • CommerzFactoring GmbH, Mainz • Times Square Funding Financials LLC, New York • CommerzLeasing Asset Verwaltungsgesellschaft • TS Co. mit One GmbH, Frankfurt am Main mbH, Grünwald (Munich) • Commerzbank Capital Funding LLC I, No longer included in the list of consolidated com- Wilmington/Delaware panies are: • Commerzbank Capital Funding LLC II, Wilmington/Delaware • Commerz Advisory Management Co. Ltd., • Commerzbank Capital Funding LLC III, British Virgin Islands Wilmington/Delaware • CommerzBaumanagement GmbH und • Commerzbank Capital Funding Trust I, CommerzImmobilien GmbH GbR – Neubau Molaris, Wilmington/Delaware Düsseldorf • Commerzbank Capital Funding Trust II, • CICO-Fonds II, Frankfurt am Main Wilmington/Delaware • CBP Cofonds, Frankfurt am Main • Commerzbank Capital Funding Trust III, (first-time and deconsolidation in 2006) Wilmington/Delaware • NESTOR GVG mbH & Co. Objekt ITTAE Frankfurt KG, • Eurohypo Aktiengesellschaft, Eschborn Düsseldorf (sub-group incl. 32 subsidiaries) • Premium Receivables Intermediate Securisation • Hansa Automobil Leasing GmbH & Co. KG, Hamburg Entity Funding Limited, London • Hibernia Alpha Beteiligungsgesellschaft mbH, • SKARBIEC Investment Management SA, Warsaw Frankfurt am Main • SKARBIEC Serwis Finansowy Sp. z o.o., Warsaw • Jupiter Adria Management Limited, Bermuda • Tyndall Trust International I.O.M. Limited, Isle of Man • Laurea Molaris GVG mbH & Co. • Zweite Umbra Vermögensverwaltungsgesellschaft Objekt Berlin Anthropolis KG, Ludwigshafen mbH, Frankfurt am Main • Laurea Molaris GVG mbH & Co. Objekt Berlin Grindelwaldweg KG, Ludwigshafen • MK LUXINVEST S.A., Luxemburg • Münchner Kapitalanlage Aktiengesellschaft, Munich • pdv.com Beratungs-GmbH, Bremen • South East Asia Properties Limited, London NOTES 115

12 (2005: 10) material associated companies – 7 of ing the same rules as for subsidiaries. For material asso- them based in Germany (2005: 6) – are measured using ciated companies, the equity book value which is carried the equity method. Four associated companies have and appears either in profit or loss or in the revaluation been included for the first time. reserve is based on the auxiliary calculations of the associated companies, prepared and audited in accordance • Delphi I LLC, Wilmington/Delaware with our instructions, with IAS/IFRS rules applied. • Exploitatiemaatschappij Wijkertunnel C.V., Holdings in subsidiaries not consolidated because of Amsterdam their minor significance and investments are shown at • Servicing Advisors Deutschland GmbH, their fair value, or if this cannot be reliably established, Frankfurt am Main at cost under the investments and securities portfolio. • Urbanitas Grundbesitzgesellschaft mbH, Berlin (5) Financial instruments: recognition and The following company has been removed from the measurement (IAS 39) list of associated companies: In accordance with IAS 39, all financial assets and liabilities – which also includes derivative financial instru- • Eurohypo AG – sub-group –, Eschborn ments – have to be recognized in the balance sheet and valued in accordance with their assigned category. A full list of all holdings of the Commerzbank Group A financial instrument is a contract which automatically is published as part of the notes in the electronic Federal produces a financial asset for the one company and a Gazette (elektronischer Bundesanzeiger) and can also be financial liability or equity instrument for the other. accessed in the electronic company register. It can further- The following remarks present an overview of how more be found under our internet address: www.commerz- the rules of IAS 39, in the currently valid version, have bank.com/InvestorRelations/Financial reports. been applied within our Group:

(4) Principles of consolidation a) Categorization of financial assets and liabilities For the consolidation of the capital accounts, we value and their valuation the assets and liabilities of subsidiaries completely afresh, regardless of the percentage share of the equity • Loans and receivables: which we held at the time of acquisition. With deferred Non-derivative financial instruments with fixed or taxes taken into consideration, the revalued assets and determinable payment claims for which no active liabilities are included in the consolidated balance sheet; market exists are assigned to this category. This the realized hidden reserves and built-in losses which holds true regardless of whether they were origi- have been identified are treated in accordance with the nated by the Bank or acquired in the secondary standards which have to be applied in subsequent market. An active market exists if quoted prices are reporting periods. If a positive difference remains after regularly made available, for example, by a stock revaluation, this is shown as goodwill. exchange or broker, and these prices are represen- Claims and liabilities deriving from business rela- tative for current transactions between remote third tions between Group companies, as well as expenses parties. Valuation is at amortized cost. Premiums and and income, are eliminated as part of the consolidation discounts are recognized under net interest income of earnings and the balance sheet. Intra-Group book over the entire lifetime to maturity. gains or losses registered during the financial year are deducted, unless they are of minor importance. • Held-to-maturity financial assets: Associated companies are valued according to the Non-derivative financial assets with fixed or deter- equity method and are shown as investments in asso- minable payments and also a fixed maturity may be ciated companies under the investments and securities included in this category if an active market exists for portfolio. The purchase cost of these investments and them and both the intent and the ability exist to hold the goodwill are determined at the time of their first them to final maturity. They are valued at amortized inclusion in the consolidated financial statements, apply- cost, with premiums and discounts being recognized 116 NOTES

under net interest income over the entire lifetime to The fair value option may be applied for a maturity. In the financial year 2006 Commerzbank financial instrument provided that Group has again made no use of the category of held- to-maturity financial assets. – an accounting mismatch will be prevented or significantly reduced or • Financial assets or financial liabilities at fair value – a portfolio of financial instruments is man- through profit or loss: aged, and its performance is measured on a This category is made up of two sub-categories: fair value basis or – the financial instrument has one or several – Financial assets or liabilities held for trading: embedded derivatives that must be sepa- This category includes financial assets and finan- rated. cial liabilities held for trading purposes (assets held for and liabilities from trading). Financial Financial instruments for which a fair value assets held for trading purposes include original option is employed are shown at their fair value financial instruments (especially interest-bearing in the appropriate balance-sheet item for their securities, equities and promissory notes), pre- respective category. The results of measurement cious metals and derivative financial instruments appear under trading profit. Further details on with a positive fair value. Financial liabilities from how and to what extent the fair value option is trading include, in particular, derivative financial used in the Commerzbank Group can be found in instruments with a negative fair value and de- Note 74. livery commitments arising from the short-selling of securities. • Available-for-sale financial assets: Derivative financial instruments used as All non-derivative financial assets not assignable hedging instruments are only recognized as to one of the above categories have to be counted assets held for trading purposes or liabilities from in this category. Primarily, these are interest-bearing trading activities insofar as they do not meet the securities, equities and investments. They are ini- conditions for the application of hedge account- tially valued at cost and subsequently at their fair ing rules (see below in this note). Otherwise, they value. After deferred taxes have been taken into con- are shown as fair values attributable to hedging sideration, measured gains and losses are recognized instruments. with no effect on the income statement in a separate Assets held for trading purposes and liabili- equity item (revaluation reserve). If the financial ties from trading activities are valued at their fair asset is sold, the cumulative valuation previously value on each balance-sheet date. The results of recognized in the revaluation reserve is released and this valuation appear under trading profit in the appears in the income statement. Should the asset’s income statement. value be permanently impaired, the revaluation Spot transactions are recognized immediately reserve has to be adjusted for the impairment, and upon conclusion of the transaction; we make a the amount has to be reflected in the income state- balance-sheet entry when the contract is per- ment. If the fair value cannot be reliably ascertained, formed. valuation is at amortized cost. Premiums and discounts are recognized under net interest income over – Designated at fair value through profit or loss: the entire lifetime to maturity. The fair value option makes it possible voluntarily to value each financial instrument at fair value • Other financial liabilities: and to reflect the net result of this valuation in the This category includes liabilities to banks and cus- income statement. The decision whether to use tomers and also securitized liabilities. Valuation is at the fair value option or not has to be made at the amortized cost. Premiums and discounts are recog- inception of the financial instrument. nized under net interest income over the entire lifetime to maturity. NOTES 117

b) Financial Guarantee contracts not shown separately and the hybrid financial instrument is valued as a whole in accordance with the According to IAS 39, a financial guarantee is a con- general provisions of the category to which the finan- tract under which the guarantor is obligated to make cial instrument is assigned. certain payments that compensate the party to whom the guarantee is issued for a loss arising in the event d) Hedge accounting a particular debtor does not meet payment obligations on time as stipulated in the original or amended IAS 39 contains extensive hedge accounting regula- terms of a debt instrument. The obligation arising tions, i.e. accounting for hedging instruments – espe- from a financial guarantee is recognized as soon as cially derivatives – and the underlying hedged trans- the guarantor becomes a contracting party, i.e. when actions. the guarantee offer is accepted. In line with general regulations, derivatives are Initial valuation is at fair value at the time of re- classified as trading transactions (assets held for cognition. Viewed overall, the fair value of a financial trading purposes or liabilities from trading activities) guarantee at the time of signature is zero because and are valued at their fair value. The result of such for fair market contracts the value of the premium valuation is shown under trading profit. If it can be agreed generally corresponds to the value of the demonstrated that derivatives are used to hedge guarantee obligation. A check is performed for sub- risks from non-trading transactions, IAS 39 permits sequent valuations to determine whether a risk pro- the application of hedge accounting rules under vision is necessary. certain conditions. For the most part, two forms of hedge accounting are distinguished: c) Embedded derivatives • Fair value hedge accounting: IAS 39 also regulates the treatment of derivatives IAS 39 prescribes the use of hedge accounting for embedded in original financial instruments (em- derivatives which serve to hedge the fair value of bedded derivatives). Such financial instruments are recognized assets or liabilities. It is above all, the also referred to as hybrid financial instruments. Group’s issuing and lending business and the securi- These include, for example, reverse convertible ties portfolio for liquidity management, insofar as bonds (bonds with a right to repayment in the form these are fixed-income securities, that are subject of equities) or bonds with indexed-related interest to this fair value risk. Primarily, interest-rate and payments. According to IAS 39, under certain con- interest-rate/currency swaps are used to hedge these ditions the embedded derivative must be shown risks. separately from the original host contract as a stand- In line with the regulations for fair value hedge alone derivative. accounting, the derivative financial instruments used Such separation has to be made if the character- for hedging purposes are shown at fair value as istics and risks of the embedded derivative are not fair values attributable to derivative hedging instru- closely related to those of the original host contract. ments. Changes upon revaluation appear as profit In this case, the embedded derivative has to be or loss in the income statement under net result on regarded as part of the trading portfolio and recog- hedge accounting as part of the trading profit. Any nized at its fair value. Changes on revaluation have to changes in the fair value of the hedged asset or be shown in profit and loss. The host contract is hedged liability resulting from the hedged risk have accounted for and valued applying the rules of the to be recognized and similarly shown in the income category to which the financial instrument is statement under net result on hedge accounting. assigned. Given a perfect hedge, the changes upon revaluation However, if the characteristics and risks of the recognized in the income statement for the hedge embedded derivative are closely linked to those of and the hedged transaction will balance one another the original host contract, the embedded derivative is out. 118 NOTES

• Cash flow hedge accounting: means the relationship between the change in fair value IAS 39 prescribes the use of cash flow hedge or the cash flow resulting from the hedged underlying accounting for derivatives which serve to hedge the transaction and the change in fair value or the cash risk of a change in future cash flows. A cash-flow risk flow resulting from the hedge. If these changes almost exists in particular for floating-rate loans, securities entirely balance one another, a high degree of effective- and liabilities and for forecast transactions (for exam- ness exists. Proof of effectiveness requires, firstly, that a ple, forecast fund-raising or financial investments). high degree of effectiveness can be expected from a Within the Commerzbank Group, the interest-rate hedge in the future (prospective effectiveness); secondly, risks in asset/liability management are largely when a hedge exists, it must be regularly demonstrated covered by means of cash flow hedges. Primarily, that this was highly effective during the period under interest-rate and interest-rate/currency swaps are review (retrospective effectiveness). A high degree of used for hedging purposes. retrospective effectiveness exists if the ratio of changes Derivative financial instruments used in cash flow in the fair values or the cash flow lies between 0.8 and hedge accounting are carried at fair value as fair 1.25. The methods used for determining effectiveness values attributable to derivative hedging instru- must be disclosed. ments. Reporting of the gain or loss has to be divided into an effective and an ineffective part. The effective (6) Currency translation valuation result is that part of the change in the fair Assets and liabilities denominated in foreign currencies value of the hedging derivative that represents an and outstanding spot foreign-exchange transactions, are effective hedge against the cash flow risk arising translated at the spot rates, and foreign-exchange for- from the hedged underlying transaction and, after ward contracts at the forward rate on the balance-sheet deferred taxes have been taken into consideration, date. Expenses and income are translated at market valuation gains and losses are recognized with no rates. Currency translation for investments and holdings effect on the income statement in a separate equity in subsidiaries that are denominated in foreign curren- item (valuation result from cash flow hedges). By cies is effected with historical rates at historical cost. contrast, the ineffective portion is shown in the Translation gains and losses from the consolidation of income statement. There is no change in the general the capital accounts appear in the balance sheet under accounting rules described above for the trans- equity. actions underlying cash flow hedges. As a result of their economically independent business activity, the financial statements of our consoli- The application of hedge accounting rules is tied to dated units abroad that are prepared in foreign curren- a number of conditions. These relate above all to the cies are translated at the spot rates of the balance-sheet documentation of the hedge and also to its effectiveness. date. The hedge has to be documented at the time it is The expenses and income generated by the trans- established. Documentation must include in particular lation of balance-sheet items are recognized in the the identification of the hedging instrument and the income statement. Hedged expenses and income are underlying hedged transaction and also details of the translated at the hedging rate. hedged risk and the method employed to determine the The following translation rates applied for the cur- effectiveness of the hedge. Documentation for an under- rencies that are most important to the Commerzbank lying transaction hedged with a derivative may relate Group as of December 31. (amount per €1 in the respec- either to an individual asset, liability, pending business tive currency): or forecast transaction or to a portfolio of such items (microhedge) which are given similar accounting treat- 2006 2005 ment. It is not sufficient, however, to document a net risk USD 1.3170 1.1797 position to be hedged. GBP 0.6715 0.6853 In addition to documentation, IAS 39 calls for evi- CHF 1.6069 1.5551 dence of an effective hedge in order for hedge account- PLN 3.8310 3.8600 ing rules to be applied. Effectiveness in this connection NOTES 119

(7) Offsetting Unrecoverable accounts for which no specific valua- We set liabilities off against claims if these relate to the tion allowance has been formed are written down imme- same counterparty, are due at call, and agreement has diately. Amounts received on written-down claims been reached with the contractual partner that interest appear in the income statement. and commissions be calculated as if only a single account existed. (11) Genuine repurchase agreements and securities-lending transactions (8) Cash reserve Repo transactions combine the spot purchase or sale of With the exception of debt issued by public-sector bor- securities with their forward sale or repurchase, the rowers, which is shown at its fair value, all the items counterparty being identical in both cases. The securities appear at their nominal value. sold under repurchase agreements (spot sale) still appear, and are valued, in the consolidated balance (9) Claims sheet as part of the securities portfolio. According to The Commerzbank Group’s claims on banks and cus- counterparty, the inflow of liquidity from the repo trans- tomers which are not held for trading and are not quoted action is shown in the balance sheet as a liability to on an active market are shown at either their nominal either banks or customers. The agreed interest pay- value or at amortized cost. Premiums and discounts are ments, if they are not the result of trading transactions, recognized in net interest income over the lifetime of the are booked as interest paid, reflecting the respective investment or security. The book values of claims which maturities. qualify for hedge accounting are adjusted for the gain or The outflows of liquidity caused by reverse repos loss attributable to the hedged risk. Claims recognized appear as claims on banks or customers and are recog- under the fair value option appear at their fair value. nized and valued accordingly. The securities bought under repurchase agreements and on which the financial (10) Provision for possible loan losses transaction is based (spot purchase) are not carried in We fully provide for the special risks associated the balance sheet, nor are they valued. The agreed in- with banking business by forming specific valuation terest payments from reverse repos, if they are not the allowances and portfolio valuation allowances. result of trading transactions, are counted as interest In order to cover the lending risks represented by income, reflecting the respective maturities. Claims claims on customers and banks, we have formed specific arising from reverse repos are not netted against liabili- valuation allowances according to uniform Group stan- ties from repos involving the same counterparty. dards. Valuation allowances have to be formed for a loan We show securities-lending transactions in a similar if it is probable that not all the interest payments and manner to securities in genuine repurchase agreements. repayments of principal can be made as agreed. The size Lent securities remain in our securities portfolio and are of the valuation allowance corresponds to the difference valued according to the rules of IAS 39. Borrowed secu- between the book value of the loan less the cash value of rities do not appear in our balance sheet, nor are they the expected future cash flow. valued. We show cash collateral which we have fur- In addition, we cover credit risk by means of portfolio nished for securities-lending transactions as a claim and valuation allowances. Actual loan losses serve as a collateral received as a liability. yardstick for the scale on which portfolio valuation allowances have to be formed, differentiated according (12) Positive fair values attributable to to sub-portfolios as shown in the balance sheet. derivative hedging instruments Insofar as it relates to claims in the balance sheet, the Derivative financial instruments used for hedging which aggregate amount of provision for possible loan losses qualify for hedge accounting and have a positive value is shown separately from claims on banks and claims appear under this item. The instruments are valued at on customers. However, provision for risks in off- fair value. balance-sheet business – guarantees, endorsement lia- Listed instruments are valued at market prices; for bilities, lending commitments – is shown as a provision non-listed products, internal price models (net present- for lending risks. value or option-price models) are used. The hedge ac- 120 NOTES

counting results for fair value hedges appear in the change in fair value attributable to the hedged risk is income statement under net result on hedge accounting shown as part of the trading profit under the net result as part of the trading profit. By contrast, effective por- on hedge accounting. In the case of permanent impair- tions of the gains and losses on cash flow hedges are ment, the required write-down is charged to the income recognized under valuation of cash flow hedges in statement. equity. Value is impaired if the fair value falls either significantly or for persistently below acquisition cost. No (13) Assets held for trading purposes write-ups may be made affecting profit or loss for avai- Securities held for trading purposes, promissory notes lable-for-sale equity instruments. Changes in the fair and precious metals appear in the balance sheet at their value of listed equity instruments during subsequent fair value on the balance-sheet date. Also shown at fair reporting periods are shown in the revaluation reserve. value are all derivative financial instruments which are This means that the net profit and loss is affected only in not used as hedging instruments in hedge accounting the case of impaired value and disposals. Write-ups of and have a positive fair value. For listed products, mar- non-listed equity instruments whose value cannot be ket prices are used; non-listed products are measured reliably determined on a regular basis may be recog- on the basis of the net present-value method or other nized neither in the income statement nor in the revalu- suitable measurement models (for instance, option-price ation reserve. If the reasons for a value impairment of models). All the realized gains and losses and also debt instruments cease to exist, a write-up has to be the net valuation changes which are not realized appear made, equal at most to the amortized cost, and reflected as part of the trading profit in the income statement. in profit or loss. The amount in excess of the amortized Interest and dividend income from trading portfolios are cost has to be reflected in the revaluation reserve. also shown under this item, less the expenses required to finance them. (15) Intangible assets Under intangible assets, we mainly recognize software, (14) Investments and securities portfolio acquired brand names, customer relationships and Our investments and securities portfolio comprises all goodwill. Valuation is at amortized cost. On each the bonds, notes and other fixed-income securities, balance-sheet date, all goodwill and brand names are shares and other variable-yield securities and all the examined with a view to their future economic utility investments and investments in associated companies, on the basis of cash-generating units. If it appears that as well as holdings in non-consolidated subsidiaries the expected utility will not materialize (impairment), an which are not held for trading purposes. In addition, extraordinary write-down is made. We depreciate soft- we include here claims quoted on an active market and ware and acquired customer relationships over a period recognize any disposal proceeds under the net result on of seven years. investments and securities portfolio (available for sale). These portfolios are recognized and valued at fair (16) Fixed assets value, or according to the equity method in the case of The land and buildings, and also office furniture and investments in associated companies. If the fair value equipment, shown under this item are capitalized at cost, cannot be reliably calculated, the item is shown at amor- less regular depreciation. Impairments are made in an tized cost; this primarily holds true for non-listed assets. amount in which the book value exceeds the higher Net changes are shown – after deferred taxes have been value of fair value minus disposal costs and the utiliza- taken into consideration – under the revaluation reserve tion value of the asset. in equity. Realized gains and losses only affect the In determining the useful life, the likely physical wear income statement when the holdings are sold. Premiums and tear, technical obsolescence and also legal and and discounts are recognized in net interest income over contractual restrictions are taken into consideration. All the lifetime of the investment or security. If, however, an fixed assets are depreciated or written off over the fol- effective hedge with a derivative financial instrument lowing periods, using the straight-line method: exists for investments or securities, that part of the NOTES 121

Probable useful life in years The Group as lessee Buildings 30 – 50 The payments made under operating lease agreements Office furniture and equipment 2 – 10 are included under operating expenses. The costs are Purchased IT equipment 2 – 8 computed like a rental payment on a regular basis corresponding to the useful life of the leased object. Financing In line with the materiality principle, purchases of lease agreements where the Commerzbank Group is a low-value fixed assets in the past financial year are lessee are of minor significance. recognized immediately as operating expenses. Profits realized on the disposal of fixed assets appear under (18) Investment properties and assets and other income, with losses being shown under other divestiture groups held for sale expenses. Investment properties are defined as land and buildings held for the purpose of earning rental income or because (17) Leasing they are expected to increase in value. Commerzbank In accordance with IAS 17, a lease is classified as an Group essentially holds properties acquired as a result of operating lease if it does not substantially transfer to the the realization of collateral. lessee all the risks and rewards that are incident to Investment properties are valued when recognized ownership. By contrast, finance leases are considered using acquisition or production cost, including directly to be those agreements which substantially transfer all attributable transaction costs, in accordance with IAS 40. the risks and rewards to the lessee. The fair model value is used for the subsequent valuation of property held as a financial investment. Fair value The Group as lessor is essentially determined based on annually updated Insofar as the leasing companies within the Commerz- valuations conducted by internal experts and on cur- bank Group are involved in the operating lease business, rently achievable market prices. Properties used for com- economic ownership of the object of the agreement is mercial purposes are usually valued based on capitalized shown on the balance sheet for the Group company. earnings; individual apartment buildings are generally Leased objects appear in the consolidated balance sheet valued using tangible or comparative value. Gains and under other assets, shown at cost or production cost, losses arising from changes in fair value are taken less regular depreciation over their useful economic through the income statement for the period. lives or if their value is impaired. Unless a different dis- Non-current assets and divestiture groups that can tribution suggests itself in individual cases, the proceeds be sold in their current condition and whose sale is prob- from leasing transactions are recognized on a straight- able must be classified as for sale. These assets must be line basis over the lifetime of the agreement and are valued at fair value less sale costs in cases where this is shown under net interest income. lower than book value. If virtually all the risks and rewards relating to the In view of their minor significance for the Commerz- leased property are transferred to the lessee (finance bank Group, these two categories are shown under other leases), the Commerzbank Group recognizes a claim on assets and other liabilities. the lessee. The claim is shown at its net investment value at the inception of the agreement. Leasing payments (19) Liabilities to banks and customers received are divided into an interest portion, which and securitized liabilities appears as interest income, and a repayment portion. Financial liabilities are recognized at amortized cost. The The income is recognized as interest income for the derivatives embedded in liabilities have been separated respective period. from their host debt instrument, valued at fair value and shown under either assets held for trading purposes or liabilities from trading activities. As part of hedge accounting, hedged liabilities were adjusted for the fair value attributable to the hedged risk. 122 NOTES

(20) Negative fair values attributable to For employees entitled to pension benefits who derivative hedging instruments joined the bank before December 31, 2004 the direct Under this item, we show derivative hedging instru- pension claims are based on the rules found in the ments with a negative fair value which do not serve Commerzbank modular plan for pension benefits, known trading purposes. The financial instruments are valued as CBA. The amount of the benefits under CBA is deter- at fair value, with market prices used as a basis for mined from an initial module for the period up to Decem- measuring listed instruments; internal price models ber 31, 2004, and from a benefit module – possibly aug- (net present-value or option-price models) are applied mented by a dynamic module – for each contributory in the case of non-listed products. The net results on year from 2005 onwards. Staff joining the Bank after hedge accounting for instruments classified as fair value January 1, 2005 have been given a commitment under hedges appear in the income statement under trading the Commerzbank capital plan for company pension profit. We show the effective portions of the gains or benefits, known as CKA. IAS 19 accounting principles losses on cash flow hedges under valuation of cash flow for defined-benefit pension plans are applied to this hedges in equity. benefit system. The assets set aside to cover these direct benefit (21) Liabilities from trading activities obligations have up to now been primarily accumulated Derivative financial instruments which have a negative internally. A small portion of these assets has already fair value, and delivery obligations from short sales of been transferred in the past to a legally independent securities, are shown as liabilities from trading activities. trust, the Commerzbank Pension-Trust e.V. (CPT). The instruments are valued at fair value. Effective June 30, 2006 the CBP Co-Fund, which had a value of €1.4bn, was transferred to CPT. The trust (22) Provisions for pensions and similar commitments assets held by CPT qualified as plan assets within the For almost all employees of Commerzbank Aktiengesell- meaning of IAS 19.7. Pursuant to IAS 19.54 the trans- schaft, of Eurohypo Aktiengesellschaft and employees ferred assets are to be netted with pension provisions, of other domestic subsidiaries, the company pension which leads to a corresponding reduction in pension pro- scheme is based on various benefit systems. Some visions within the Group. employees are given a pension benefit entitlement The pension expenses for direct pension commit- based on an indirect commitment (defined contribution ments, which have to appear in the income statement, plan). To finance the scheme, the Group pays a fixed consist of several components. First and foremost, the amount for old-age provision to external providers service cost has to be considered. In addition, there is (including Versicherungsverein des Bankgewerbes a.G. the interest cost on the cash value of the obligation, [BVV], Berlin, Versorgungskasse des Bankgewerbes e.V., as the time at which it must be met has moved one Berlin) with employees also making contributions. period closer. The anticipated net income from the plan The size of future pension benefits is determined in assets reduce the pension expenses. The pension this case by the amounts paid in and by the accrued expenses continue to increase or decrease as a result of income on the assets. IAS 19 accounting principles for the amortization of posted actuarial gains or losses not defined contribution plans are applied to these indirect affecting the income statement. A service cost must also systems, i.e. the contributions to the external providers be recognized retroactively if applicable. are shown as current expenses and hence, no provision The size of the provision in accordance with IAS is formed. 19.54 is therefore as follows: Other employees are given a pension benefit entitlement based on a direct benefit commitment, under Cash value of the defined-benefit obligation which the size of the benefit is fixed, being determined for direct commitments (DBO) by such factors as age, salary and length of service less fair value of plan assets (defined-benefit plan). less/plus unrecognized actuarial losses or gains less a not yet recorded period of service to be offset retrospectively, if applicable = size of the pension provision NOTES 123

For defined-benefit plans the pension obligation is on the treatment of the underlying item – they are recog- calculated annually by an independent actuary, using a nized either under taxes on income in the income state- projected-unit-credit method. This calculation is based ment or under the respective equity item with no effect partly on biometric assumptions but principally on the on profit or loss. current market interest rate for top-quality, long-dated, Income-tax expenses or income are shown under fixed-income corporate bonds and on the rates of increase taxes on income in the consolidated income statement for salaries and pensions to be expected in the future. and divided in the notes into current and deferred tax According to IAS 19.92 et seq., any actuarial profits claims and liabilities in the financial year. Other taxes and losses that have not yet been amortized do not have which are not dependent on earnings appear under to be recognized until the reporting period in which they other result. Current and deferred tax assets and tax exceed the corridor of 10% of the greater of DBO or the fair liabilities appear as separate asset or liability items in value of the plan assets at the beginning of the period. the balance sheet. Only that part comprising the amount that falls outside of the corridor divided by the average expected remaining (25) Subordinated and hybrid capital working lives of the employees covered by the plan has to Under subordinated and hybrid capital we show issues be charged as an expense. The Bank’s internal accounting of profit-sharing certificates, securitized and non-securi- methods allow us to recognize the actuarial profits and tized subordinated liabilities as well as hybrid capital losses in our income statement earlier and more quickly. instruments. After their initial recognition at cost, they The obligations similar to those for pensions include are shown at amortized cost. Premiums and discounts obligations under early-retirement schemes and under are recognized under net interest income over the entire part-time work schemes for older staff, which have been lifetime to maturity. computed with the aid of actuarial rules. (26) Trust transactions at third-party risk (23) Other provisions Trust business involving the management or placing of We form other provisions on the scale deemed neces- assets for the account of others is not shown in the sary for liabilities of uncertain amount towards third par- balance sheet. Commissions received from such busi- ties and for anticipated losses related to uncompleted ness are included under net commission income in the transactions. income statement.

(24) Taxes on income (27) Treasury shares Current actual tax assets and liabilities were calculated Treasury shares held by Commerzbank Aktiengesellschaft by applying the currently valid tax rates at which a in its portfolio on the balance-sheet date are deducted refund from, or a payment to, the relevant fiscal authori- directly from equity. Gains and losses resulting from the ties is made. Bank’s own shares are set off against one another, with Deferred tax assets and liabilities derive from dif- no effect on profit or loss. ferences between the value of an asset or liability as shown in the balance sheet and its assigned value in tax (28) Staff remuneration plans terms. In the future, these will probably either increase The Group has so far approved six long-term perform- or reduce taxes on income (timing differences). They ance plans (LTPs 2001-2006) for its executives and were valued at the specific income-tax rates which apply selected other members of staff. The LTP 2001 expired in the country where the company in question has its without payment in the year under review. €11.7m was registered office and which can be expected to apply for paid out for the LTP 2002 and €24.4m for the LTP 2003 the period in which they are realized. Deferred taxes, in the year under review. The plans still outstanding among other things on as yet unused losses carried for- provide remuneration geared to the performance of the ward, are only shown in the balance sheet if taxable prof- share price and the index. Staff at Commerzbank Aktien- its are likely to occur at the same unit. Tax assets and lia- gesellschaft, various subsidiaries in Germany and at bilities may not be discounted. Deferred tax assets and selected operational units outside Germany are entitled liabilities are formed and carried such that – depending to participate. 124 NOTES

In order to participate in the LTPs those eligible have After three years, the base prices of the issuing year to invest in Commerzbank shares. The scale of this are compared with the data for the 1st quarter of the year investment for staff below the level of Board of Man- under review to determined whether outperformance aging Directors depends on function group (the possible of at least one percentage point compared to the Dow amount ranges between 100 and 1,200 shares). At least Jones Euro Stoxx® banks index was achieved and/or the one of the following conditions must be met for pay- Commerzbank share price rose by at least 25% compared ments to be made under these plans: to the base price. In the event that none of the exercise criteria have The following applies for 50% of the staff member’s own been met after three years have elapsed, the comparison investment: is repeated at annual intervals. The data from the issuing • Commerzbank shares must outperform the Dow year remain the basis for comparison. If none of the per- Jones Euro Stoxx® banks index. For each one performance targets have been achieved after five years, centage point of outperformance a payment of €10 the plan is terminated. will be made, up to a maximum of €100 per share. In addition, long-term, independent incentives known as LFI exist for the executive managers of Eurohypo, The following applies for 50% of the staff member’s own dating from the 2004 and 2005 financial years. No new investment: incentives were launched for the 2006 financial year, • Commerzbank shares must rise in absolute terms. instead the members of the Board of Managing Directors For a 25% rise in the share price a payment of €10 will of Eurohypo were entitled to participate in the LTP of be made; for each additional 3 percentage points of Commerzbank. Further to the LFI, employees had the outperformance an additional €10 will be paid, up to right to subscribe to shares of Eurohypo if a certain tar- a maximum of €100 per share. geted value for ”return on equity after tax” is achieved. If the targeted value is exceeded or not achieved, the Eligible participants receive a maximum of €100 per number of shares increases or decreases by 25% per per- share paid out in cash. Payment of the LTP is dependent centage point of the outperformance or the underperfor- upon Commerzbank Aktiengesellschaft paying a dividend mance. The calculation of shares eligible for suscription for the financial year. is based on the average Eurohypo share price in the The base price of the index for the performance com- financial year 2003. In 2006, the entitlements to shares of parison and the base price of the Commerzbank share is Eurohypo gained in 2004 and 2005 were converted on a determined at the end of March of each issuing year. one to one basis into entitlements to Commerzbank AG shares. The earliest date at which the 2004 LFI incentives • The base price for Commerzbank shares is the average will be transferred or paid out at is the Annual General of the daily Xetra closing prices in the 1st quarter of Meeting at which a resolution will be passed on the the issuing year, subsequently adjusted for corporate appropriation of profit for the financial year 2007. For the actions. 2005 LFI incentives the resolution on the appropriation of • The base price for the index is the average of the profit for the 2008 financial year is the determining fac- daily closing prices of the Dow Jones Euro Stoxx® tor. The long-term incentives will be paid out in shares or banks index (price index) in the 1st quarter of the cash at Eurohypo’s discretion. issuing year. NOTES 125

Within the Jupiter International Group plc (JIG), there Additional adjusted option rights were issued in 2004 were three staff remuneration/stock-option plans as of and 2005 under the ”E Options Plan”. This plan is basi- December 31, 2006. cally comparable to the ”D Options Plan” and is open to The ”C Shares or Growth Shares Plan” gives those key employees that joined the company after December eligible – a group of senior staff – the right to subscribe 31, 2003. No rights from the ”E Options Plan” were exer- to shares of Commerz Asset Management (UK) plc (CAM cised in the 2006 financial year. UK), which are also subject to an obligation to purchase With the expiration of the C shares, new subscription on the part of Commerzbank Aktiengesellschaft. The rights to shares of the CAM UK were issued under the value of the purchasable shares is based on the stan- name ”F shares”. All key employees of JIG are eligible. dardized change in value of the JIG Group. Those eligi- Eligible staff will be allocated a pre-set number of ble do not receive a guaranteed payment, as the refer- F shares in 2006 to 2008. Because CAM UK is not listed ence figure may change. Employees have the right to on the stock exchange, the F shares can be sold to the tender delivery of shares annually, within certain limits, majority investor (currently Commerzbank Aktiengesell- but they can also dispose of their entire holding after schaft). One third of the F shares allocated in 2006 can four years. In addition, certain rights also exist in con- each be sold in 2007, in 2009 and finally, in 2010 to the nection with a ”change-of-control” clause. The reference majority investor. The value of the F shares is based on base for this plan was altered in 2003, with the adjusted the standardized profit performance of JIG. profit for 2000 being replaced by that for 2002. No more In addition, it is possible at other subsidiaries (e.g. new awards have been granted under this plan since comdirect bank AG), including in Asset Management, for 2003. In the 2006 financial year Commerzbank Aktien- selected employees to participate through private equity gesellschaft purchased shares under this plan to an over- models in the performance of the respective companies. all value of £25.7m. The programme expired in 2006. Payment in such cases depends on the extent to which At the same time, an ongoing option programme fixed performance targets are attained. These models was launched in 2003 in favour of the employees of JIG, include direct investment in shares of the respective which entails cash compensation based on the per- companies. Frequently, these are offered at reduced formance of JIG and can be considered to be a virtual prices and/or in combination with call or put options. In stock option plan. Internally, this plan is known as the addition, warrants and share subscription rights are also ”D Options Plan” and all those who had joined Jupiter issued. Bonuses are also granted which may either be before December 31, 2003, most of whom were already used to subscribe to shares or paid in cash. The ob- entitled under the ”C Shares Plan”, are entitled to partici- servance of blocking periods and agreements for later pate. Under this plan, a payment falls due if the adjusted repurchase determine whether additional income is profit in the year prior to exercise of the option is higher received. than the level of the base year (the year the option was The staff remuneration plans described here are granted). By way of exception, the 2003 adjusted profit treated according to the rules of IFRS 2 – Share-based was established as the reference figure for the options Payment and to IAS 19 respectively. IFRS 2 distinguishes granted in 2003. One third of the options may not be between share-based payments settled in the form of exercised until three years after they are granted and a equity instruments and those settled in cash. For both further third after four years. All options have to be exer- forms, however, the granting of share-based payments cised no later than five years after they are granted has to be recognized at fair value in the annual financial otherwise they expire. In addition, certain rights also statements. The majority of the staff remuneration plans exist in connection with a ”change-of-control” clause. In described are classified and recognized as cash-settled the 2006 financial year, Commerzbank Aktiengesellschaft payment transactions. purchased shares for the first time under the ”D Options Plan” to an overall value of £3.3m. 126 NOTES

Share-based payments settled Valuation models in the form of equity instruments In order to calculate the fair values of the staff remune- The fair value of share-based payments settled in the ration plans that exist within Commerzbank Group, we form of equity instruments has to be recognized as per- have engaged external actuaries. Either a Monte Carlo sonnel expenses and reflected accordingly in equity model or a binominal model is used for valuation pur- (capital reserve). The fair value at the time the awards poses. are granted – with the exception of the effect of non- A Monte Carlo simulation of changes which boost market-based exercise conditions – has to be determined future share prices is applied to measure the awards and recognized as expense on a straight-line basis over granted under LTPs. The model is based on the assump- the time during which the employee acquires irrevocable tion that stock yields are normally distributed in statis- claims to the awards. The amount recognized as tical terms around a mean corresponding to a risk-free expenses may only adjusted if the estimates made by investment in an interest-bearing security. the Bank regarding the number of equity instruments An actuarial binominal model is used for determining which will finally be issued change. the fair value of the options that exist as a result of staff No expenses are recognized for those rights which remuneration plans at JIG, Caisse Centrale de Réescompte cannot finally be exercised due to failure to achieve a (CCR) and their subsidiaries. It takes into account the condition of exercise (e.g. a performance target is not terms and conditions for granting such awards. The reached). share price on each reporting date and the exercise price are calculated on the basis of the specific conditions and Share-based cash-settled payments formulae contained in the plans, which are linked to the The portion of the fair value of share-based payments after-tax profit of the companies in question. settled in cash that relates to services performed up to the date of measurement is recognized as personnel expenses, accompanied by its recognition as a provision. The fair value is calculated afresh for every reporting date up to and including the date of settlement. Every change in the fair value of the provision has to be reflected in profit or loss. On the date of settlement, therefore, the accumulated value of the fair value of the provision has to correspond to the amount paid to the eligible employees. NOTES 127

Acquisition of the majority interest in other companies

Under an agreement on November 16, 2005, Commerz- For the newly acquired shares of 66.2%, a difference bank Inlandsbanken Holding AG, a subsidiary of our in amount (€624m) exists between the purchase cost and Group, concluded purchase agreements to acquire the share of equity we hold; as far as possible, we have 66.2% of the shares of Eurohypo at a price of €4.56bn. spread this amount over the assets recognized in the The amortized cost of the shares already held on Novem- balance sheet and other individually identifiable assets ber 15, 2005, amounted to €1.8 bn. The purchase took such as customer relationships and brand name thereby place in two stages: 17.1% was taken over on December revaluing them (€188m), and treated the remaining 15, 2005, while the remaining 49.1% was taken over on amount as goodwill (€436m). March 31, 2006. Taken together with the Group’s pre- A total of 57.7m shares were issued for financing pur- vious interest of 31.8% in Eurohypo included, we held poses at a price of €23.50. After deducting the costs for 98.04% of its shares as of December 31, 2006. As a result, the capital increase, the total value stands at €1,327m. the Eurohypo sub-group has been fully consolidated Hybrid capital in the volume of €2,149m was issued. since March 31, 2006 with the results of the first three months being included in the Group income statement using the equity method. Details of the company can be found in the annual report of Eurohypo Group, published separately. 128 NOTES

The Eurohypo sub-group was included for the first time in the consolidated financial statements on March 31, 2006 using the following values (after adjustment due to change in the provision for possible loan losses):

Consolidated Eurohypo assigned values book values Items € m€ m Cash reserve 107 107 Claims on banks 27,765 27,614 Claims on customers 145,441 142,950 Provision for possible loan losses –2,520 –2,520 Positive market values attributable to derivative hedge instruments 2,925 2,925 Assets held for trading purposes 3,399 3,399 Investments and securities portfolio 54,590 54,590 Intangible assets 328 156 Fixed assets 171 171 Tax assets 452 415 Other assets 189 190 Total assets 232,847 229,997 Liabilities to banks 49,071 48,838 Liabilities to customers 37,677 36,769 Securitized liabilities 123,894 122,506 Negative market values attributable to derivative hedge instruments 7,581 7,581 Liabilities from trading activities 3,029 3,029 Provisions 628 564 Income-tax liabilities 332 267 Other liabilities 158 158 Subordinated capital 3,303 3,175 Hybrid capital 921 900 Equity 6,253 6,210 Total liabilities 232,847 229,997

Off-balance-sheet liabilities 10,349 10,318

Overall, the Eurohypo sub-group contributed a total of We also took over the Münchner Kapitalanlage €360m to the consolidated surplus in 2006. Assuming Aktiengesellschaft, Munich, in the year under review. that the sub-group had been fully consolidated for all of The purchase price was €11m and was paid in full in 2006, the total contribution would have been €478m. cash. The company has assets amounting to €15m and debts of €4m. In 2006, the contribution to the consolidated surplus amounted to €0.2m. NOTES 129

Notes to the income statement

(29) Net interest income

2006 20051) Change € m € m in % Interest income from lending and money-market transactions and also from available-for-sale securities portfolio 18,327 11,924 53.7 Dividends from securities 148 109 35.8 Current result on investments and subsidiaries 83 95 –12.6 Current result on investments in associated companies 90 177 –49.2 Current result from leasing and comparable assets 193 217 –11.1 Interest income 18,841 12,522 50.5 Interest paid on subordinated and hybrid capital 684 481 42.2 Interest paid on securitized liabilities 6,841 3,206 · Interest paid on other liabilities 7,222 5,494 31.5 Current expenses from leasing and comparable assets 178 174 2.3 Interest expenses 14,925 9,355 59.5 Total 3,916 3,167 23.7

Interest margin: The average interest margin, based on the average risk-weighted assets in the on-balance-sheet business according to BIS, was 2.30% (previous year: 2.86%).

(30) Provision for possible loan losses

Provision for possible loan losses appears as follows in the consolidated income statement:

2006 20051) Change € m € m in % Allocation to provisions –1,646 –1,346 22.3 Reversals of provisions 869 874 –0.6 Direct write-downs –131 –95 37.9 Income received on written-down claims 30 46 –34.8 Total –878 –521 68.5

Allocations in the 2006 financial year include one-off effects of €293m due to adjustment of the default criteria.

1) After adjustment due to change in the provision for possible loan losses. 130 NOTES

(31) Net commission income

2006 2005 Change € m € m in % Securities transactions 945 901 4.9 Asset management 767 620 23.7 Payment transactions and foreign commercial business 431 422 2.1 Guarantees 165 153 7.8 Income from syndicated business 121 110 10.0 Other net commission income 432 209 · Total 2,861 2,415 18.5

Net commission income includes €557m (previous year: €402m) of commissions paid. Other net commission income includes €191m of commissions received in connection with construction financings and real-estate business.

(32) Trading profit

Trading profit has been split into four components: All financial instruments held for trading purposes are valued at their fair value. We use market prices to value • Net result on trading in securities, promissory notes, listed products, while internal price models (primarily net- precious metals and derivative instruments. present-value and option-price models) are used in deter- • Net result on the valuation of derivative financial mining the current value of non-listed trading trans- instruments which do not form part of the trading actions. Apart from the realized and unrealized gains and book and do not qualify for hedge accounting. losses attributable to trading activities, trading profit also • Net result on hedge accounting. includes the interest and dividend income related to such • Net result from applying the fair value option. transactions and their funding costs.

2006 2005 Change € m € m in % Net result on trading 1,200 834 43.9 Net result on the valuation of derivative financial instruments –93 –148 –37.2 Net result on hedge accounting*) 17 –22 · Net result from applying the fair value option 53 21 · Total 1,177 685 71.8

*) Starting with the 2006 financial year, the net result on hedge accounting is shown as part of the trading profit; an adjustment to the figure reported for the previous year was made accordingly. NOTES 131

The net result on trading is divided as follows among the departments that conduct proprietary trading:

2006 2005 Change € m € m in % Corporates & Markets Equity 555 413 34.4 Fixed Income 275 226 21.7 Foreign Exchange 165 105 57.1 Treasury 36 –34 · Others 169 124 36.3 Total 1,200 834 43.9

The net result on hedge accounting reflects the gains and losses attributable to effective hedges in connection with hedge accounting.

It is broken down as follows:

2006 2005 Change € m € m in % Net result on derivatives used as hedging instruments –146 –1,330 –89.0 Net result on hedged items 163 1,308 –87.5 Total 17 –22 ·

(33) Net result on investments and securities portfolio (available for sale)

Under the net result on investments and securities portfolio, we show the disposal proceeds the gains and losses on available-for-sale securities, investments, investments in associated companies and holdings in subsidiaries which have not been consolidated.

2006 2005 Change € m € m in % Net result on available-for-sale securities 145 216 –32.9 Net result on disposals and valuation of investments, investments in associated companies and holdings in subsidiaries 625 431 45.0 Total 770 647 19.0 132 NOTES

(34) Other result

The other result primarily comprises allocations to architects’ fees occur in connection with the construction and reversals of provisions, as well as interim expenses management of our sub-group CommerzLeasing und and income attributable to hire-purchase agreements. Immobilien AG. Other taxes are also included in this Expenses and income arising from building and item.

2006 2005 Change € m € m in % Material other expenses 221 146 51.4 Expenses arising from building and architects’ services 51 42 21.4 Allocations to provisions 86 69 24.6 Hire-purchase expenses and interim costs 84 35 · Material other income 198 198 0.0 Reversals of provisions 93 108 –13.9 Hire-purchase proceeds and interim income 34 35 –2.9 Income from building and architects’ services 56 47 19.1 Income from disposal of fixed assets 15 8 87.5 Balance of sundry other expenses/income 9 –26 · Other result –14 26 ·

(35) Operating expenses

The Group’s operating expenses consist of personnel and other expenses, and depreciation on office furniture and equipment, property, and on other intangible assets. The expenses break down as follows:

Personnel expenses:

2006 2005 Change € m € m in % Wages and salaries 2,543 2,108 20.6 Compulsory social-security contributions 341 305 11.8 Expenses for pensions and other employee benefits 244 254 –3.9 of which: Contributions to BVV and Versorgungskasse des Bankgewerbes 52 48 8.3 Company pension scheme 192 206 –6.8 Total 3,128 2,667 17.3 NOTES 133

Other expenses:

2006 2005 Change € m € m in % Expenses for office space 511 480 6.5 IT expenses 396 394 0.5 Compulsory contributions, consulting, other operating and company-law expenses 354 274 29.2 Advertising, PR and promotional expenses, consulting 166 130 27.7 Workplace expenses 177 171 3.5 Sundry expenses 137 111 23.4 Total 1,741 1,560 11.6

The auditors’ fee (excluding VAT) of €9.3m, recognized as expenses in Germany in the financial year, breaks down as follows:

2006 2005 Change €1,000 €1,000 in % Audit of financial statements 6,279 4,978 26.1 Provision of other certificates or assessments 2,366 1,338 76.8 Tax consulting services 425 507 –16.2 Other services 270 762 –64.6 Total 9,340 7,585 23.1

Depreciation of office furniture and equipment, property and other intangible assets:

2006 2005 Change € m € m in % Office furniture and equipment 201 219 –8.2 Property 37 148 –75.0 Other intangible assets 97 68 42.6 Total 335 435 –23.0

The depreciation on property last year included an unplanned decrease in value of €118m on land and buildings in Asia. 134 NOTES

(36) Restructuring expenses

2006 2005 Change € m € m in % Expenses for restructuring measures introduced 253 37 · Total 253 37 ·

In 2006, a total of €253m in restructuring expenses was banking and IT. The expenses primarily relate to staff incurred primarily in connection with the integration reductions and other expenses for the closure of loca- of Eurohypo and process improvements in transaction tions.

(37) Taxes on income

Income-tax expenses break down as follows:

2006 20051) Change € m € m in % Current taxes on income 300 264 13.6 Deferred taxes 287 163 76.1 Total 587 427 37.5

Deferred taxes on the assets side include tax expenses of €104m from the writing-back of capitalized advantages deriving from loss carry-forwards, which were used in the past financial year.

1) After adjustment due to change in the provision for possible loan losses. NOTES 135

The following reconciliation shows the connection between profit from ordinary activities and taxes on income in the past financial year:

2006 20051) € m€ m Net pre-tax profit according to IAS/IFRS 2,375 1,720 Group’s income-tax rate (%) 39.9 39.9 Calculated income-tax payments in financial year 948 686 Effects due to differing tax rates affecting income during periods in question –161 –27 Effects of taxes from previous years recognized in past financial year 7 8 Effects of non-deductible operating expenses and tax-exempt income –563 –498 Deferred tax assets not recognized 166 210 Other effects 190 48 Taxes on income 587 427

The Group income-tax rate selected as a basis for the into consideration, the German income-tax rate is roughly reconciliation is made up of the corporate income-tax rate 39.9%. of 25% applied in Germany, plus the solidarity surcharge Income effects result from discrepancies between of 5.5%, and an average rate of 18.4% for trade earnings the tax rates valid for foreign units. Tax rates outside tax. With the deductibility of trade earnings tax taken Germany ranged between 0% and 46%.

(38) Basic earnings per share

31.12.2006 31.12.20051) Change in % Operating profit (€ m) 2,628 1,757 49.6 Consolidated surplus (€ m) 1,597 1,187 34.5 Average number of ordinary shares issued (units) 656,301,386 603,956,296 8.7 Operating profit per share (€) 4.00 2.91 37.5 Earnings per share (€) 2.43 1.97 23.4

The earnings per share, calculated in accordance with In the past financial year and on December 31, 2006, IAS 33, is based on consolidated surplus without the no conversion or option rights were outstanding. It was profit/loss for the year attributable to minority interests. not necessary to calculate diluted earnings.

(39) Cost/income ratio

2006 20051) Change in % Cost/income ratio before restructuring expenses 59.7 67.2 –11.2

The cost/income ratio represents the quotient formed by operating expenses and income before provisioning.

1) After adjustment due to change in the provision for possible loan losses. 136 NOTES

(40) Segment reporting

Segment reporting reflects the results of the operational Due to the integration and full consolidation of business lines within the Commerzbank Group. It is Eurohypo, changes have been made to the organi- based on our internal management information, which is zational structure of the Commerzbank Group. As of compiled every month in accordance with IAS rules. June 30, 2006, we adapted our segment reporting, and also the year-ago figures, to the new structure.

Survey of the structure of the operating divisions valid in the past financial year:

Retail Banking and Corporate and Commercial Real Estate, Group Investments Asset Management Investment Banking Public Finance and Treasury and Others

Private and Asset Corporates & Commercial Public Finance Others and Business Mittelstand Management Markets Real Estate and Treasury Consolidation Customers

We report on seven segments: • Public Finance and Treasury consists of Hypotheken- bank in Essen and Erste Europäische Pfandbrief- • Private and Business Customers includes branch und Kommunalkreditbank in Luxemburg, Eurohypo’s business with private individuals, professional and public finance business and the Group Treasury business people, private banking, the activities of department. comdirect bank and the retail banking of Eurohypo. • In the Others and Consolidation segment, the • Asset Management comprises primarily cominvest expenses and income appear for which the opera- Asset Management, Jupiter International Group, Caisse tional banking departments are not responsible. Centrale de Réescompte, Commerzbank Europe These also include those expenses and income items (Ireland) and Commerz Grundbesitzgesellschaft. that are necessary in order to reconcile the control variables of internal accounting, shown in the seg- • Mittelstand presents the results of corporate banking ment reporting of the operational departments, in Germany, the Central and Eastern European region with the corresponding external accounting data. and Asia, as well as the Financial Institutions depart- This segment also covers equity holdings which are ment. not assigned to the operational segments.

• Corporates & Markets comprises equity and bond- While foreign treasury activities have been assigned trading activities, trading in derivative instruments, to the respective locations outside Germany, the revenue interest-rate and currency management, as well as from German treasury activities (domestic liquidity man- corporate finance. In addition, this segment is agement and equity structure management) is divided responsible for business involving multinational between the relevant segments. companies. It also looks after the regions of Western The result generated by each segment is measured in Europe, America and Africa. terms of the operating profit and the pre-tax profit, as well as the figures for the return on equity and the • Commercial Real Estate presents the results of cost/income ratio. Through the presentation of pre-tax CommerzLeasing und Immobilien, CORECD and profits, minority interests are included in both the result Eurohypo’s commercial real-estate activities. and the average equity tied up. All the revenue for which a segment is responsible is thus reflected in the pre-tax profit. NOTES 137

The return on equity is calculated from the ratio The average amount of equity tied up is worked between the profit (operating or pre-tax) and the average out using the BIS system, based on the established amount of equity that is tied up. It shows the return on average amount of risk-weighted assets and the capital the equity that is invested in a given segment. The charges for market risk positions (risk-weighted asset cost/income ratio in operating business reflects the cost equivalents). At Group level, investors’ capital is shown, efficiency of the various segments. It represents the which is used to calculate the return on equity. The capi- quotient formed by operating expenses and income tal backing for risk-weighted assets assumed for seg- before provisioning. ment reporting purposes is 6% from the second quarter Income and expenses are shown such that they onwards and 7% for the first quarter. reflect the originating unit and appear at market prices, Direct and indirect expenditure form the operating with the market interest rate applied in the case of expenses which are shown in the operating profit. They interest-rate instruments. Net interest income reflects consist of personnel costs, other expenses and depre- the actual funding costs of the equity participations, ciation of fixed assets and other intangible assets. which are assigned to the respective segments accord- Restructuring expenses appear below the operating ing to their specific business orientation. The investment profit in the pre-tax profit. Operating expenses are yield achieved by the Group on its equity is assigned assigned to the individual segments on the basis of to the net interest income of the various segments the causation principle. The indirect expenses arising such that it reflects the average amount of equity that in connection with internal services are charged to the is tied up. The interest rate corresponds to that of a beneficiary or credited to the segment performing risk-free investment in the long-term capital market. the service. 138 NOTES

Breakdown, by segment

2006 financial year Retail Banking and Corporate and Commercial Real Others Total Asset Management Investment Banking Estate, Public Finance and and Treasury Consoli- Private Asset Mittel- Corpo- Com- Public dation and Manage- stand rates & mercial Finance Business ment Markets Real and € m Customers Estate Treasury Net interest income 1,261 –20 1,255 347 696 393 –16 3,916 Provision for possible loan losses –585 – –128 11 –148 –28 – –878 Net interest income after provisioning 676 –20 1,127 358 548 365 –16 3,038 Net commission income 1,160 735 676 132 214 –29 –27 2,861 Trading profit1) 4 12 105 1,022 23 –42 53 1,177 Net result on investments and securities portfolio –4 11 7 19 4 102 631 770 Other result –15 –6 –5 43 28 2 –61 –14 Revenue 1,821 732 1,910 1,574 817 398 580 7,832 Operating expenses 1,879 593 1,093 957 375 117 190 5,204 Operating profit –58 139 817 617 442 281 390 2,628 Restructuring expenses 113 22 – 3 13 6 96 253 Pre-tax profit –171 117 817 614 429 275 294 2,375

Average equity tied up 2,320 567 3,003 2,394 3,097 1,104 –282 12,203 Operating return on equity (%) –2.5 24.5 27.2 25.8 14.3 25.5 · 21.5 Cost/income ratio in operating business (%) 78.1 81.0 53.6 61.2 38.9 27.5 · 59.7 Return on equity of pre-tax profit (%) –7.4 20.6 27.2 25.6 13.9 24.9 · 19.5

Staff (average no.) 10,777 1,873 9,402 1,728 1,427 298 9,025 34,530

1) Starting with the 2006 financial year, the net result on hedge accounting is shown as part of the trading profit. NOTES 139

Breakdown, by segment

2005 financial year1) Retail Banking and Corporate and Commercial Real Others Total Asset Management Investment Banking Estate, Public Finance and and Treasury Consoli- Private Asset Mittel- Corpo- Com- Public dation and Manage- stand rates & mercial Finance Business ment Markets Real and € m Customers Estate Treasury Net interest income 1,137 –10 1,195 363 173 399 –90 3,167 Provision for possible loan losses –268 – –158 68 –130 –33 – –521 Net interest income after provisioning 869 –10 1,037 431 43 366 –90 2,646 Net commission income 1,065 575 593 118 79 –13 –2 2,415 Trading profit 3 9 90 765 –1 –200 19 685 Net result on investments and securities portfolio – 16 9 –4 – 164 462 647 Other result 14 –4 –5 6 6 –3 12 26 Revenue 1,951 586 1,724 1,316 127 314 401 6,419 Operating expenses 1,720 466 1,054 943 87 52 340 4,662 Operating profit 231 120 670 373 40 262 61 1,757 Restructuring expenses – – 22 15 – – – 37 Pre-tax profit 231 120 648 358 40 262 61 1,720

Average equity tied up 1,915 537 3,118 2,749 467 936 488 10,210 Operating return on equity (%) 12.1 22.3 21.5 13.6 8.6 28.0 · 17.2 Cost/income ratio in operating business (%) 77.5 79.5 56.0 75.6 33.9 15.0 · 67.2 Return on equity of pre-tax profit (%) 12.1 22.3 20.8 13.0 8.6 28.0 · 16.8

Staff (average no.) 10,461 1,705 8,427 1,739 609 251 8,350 31,542

1) Year-ago figures after adjustment due to change in the provision for possible loan losses and change in the segment structure. 140 NOTES

Quarterly results, by segment

1st quarter 20061) Retail Banking and Corporate and Commercial Real Others Total Asset Management Investment Banking Estate, Public Finance and and Treasury Consoli- Private Asset Mittel- Corpo- Com- Public dation and Manage- stand rates & mercial Finance Business ment Markets Real and € m Customers Estate Treasury Net interest income 285 –4 311 93 51 94 1 831 Provision for possible loan losses –56 – –80 –11 –4 –8 – –159 Net interest income after provisioning 229 –4 231 82 47 86 1 672 Net commission income 346 168 160 32 18 –4 –2 718 Trading profit2) 1 3 27 305 – –6 6 336 Net result on investments and securities portfolio – 3 5 15 – –11 433 445 Other result –12 – –1 8 4 – –20 –21 Revenue 564 170 422 442 69 65 418 2,150 Operating expenses 452 128 269 252 24 13 52 1,190 Operating profit 112 42 153 190 45 52 366 960 Restructuring expenses – – – – – – – – Pre-tax profit 112 42 153 190 45 52 366 960

2nd quarter 20061) Retail Banking and Corporate and Commercial Real Others Total Asset Management Investment Banking Estate, Public Finance and and Treasury Consoli- Private Asset Mittel- Corpo- Com- Public dation and Manage- stand rates & mercial Finance Business ment Markets Real and € m Customers Estate Treasury Net interest income 323 –6 282 68 216 144 33 1,060 Provision for possible loan losses –72 – –81 –9 –55 –8 – –225 Net interest income after provisioning 251 –6 201 59 161 136 33 835 Net commission income 280 174 164 20 45 –13 –11 659 Trading profit2) 1 4 27 305 4 –7 21 355 Net result on investments and securities portfolio –2 3 – 5 4 37 137 184 Other result –5 –1 – 21 18 1 –40 –6 Revenue 525 174 392 410 232 154 140 2,027 Operating expenses 471 147 262 251 120 30 46 1,327 Operating profit 54 27 130 159 112 124 94 700 Restructuring expenses 96 – – 3 13 6 96 214 Pre-tax profit –42 27 130 156 99 118 –2 486

Quarterly results, by segment

3rd quarter 20061) Retail Banking and Corporate and Commercial Real Others Total Asset Management Investment Banking Estate, Public Finance and and Treasury Consoli- Private Asset Mittel- Corpo- Com- Public dation and Manage- stand rates & mercial Finance Business ment Markets Real and € m Customers Estate Treasury Net interest income 331 –6 323 95 203 127 –23 1,050 Provision for possible loan losses –381 – –13 27 –41 –7 – –415 Net interest income after provisioning –50 –6 310 122 162 120 –23 635 Net commission income 272 177 164 35 66 –8 –3 703 Trading profit1) 1 3 23 203 8 –53 –2 183 Net result on investments and securities portfolio –1 – – – 2 26 64 91 Other result 1 –3 –3 20 8 –2 –4 17 Revenue 223 171 494 380 246 83 32 1,629 Operating expenses 474 139 274 222 108 31 44 1,292 Operating profit –251 32 220 158 138 52 –12 337 Restructuring expenses – – – – – – – – Pre-tax profit –251 32 220 158 138 52 –12 337

4th quarter 2006 Retail Banking and Corporate and Commercial Real Others Total Asset Management Investment Banking Estate, Public Finance and and Treasury Consoli- Private Asset Mittel- Corpo- Com- Public dation and Manage- stand rates & mercial Finance Business ment Markets Real and € m Customers Estate Treasury Net interest income 322 –4 339 91 226 28 –27 975 Provision for possible loan losses –76 – 46 4 –48 –5 – –79 Net interest income after provisioning 246 –4 385 95 178 23 –27 896 Net commission income 262 216 188 45 85 –4 –11 781 Trading profit1) 1 2 28 209 11 24 28 303 Net result on investments and securities portfolio –1 5 2 –1 –2 50 –3 50 Other result 1 –2 –1 –6 –2 3 3 –4 Revenue 509 217 602 342 270 96 –10 2,026 Operating expenses 482 179 288 232 123 43 48 1,395 Operating profit 27 38 314 110 147 53 –58 631 Restructuring expenses 17 22 – – – – – 39 Pre-tax profit 10 16 314 110 147 53 –58 592

Results, by geographical market

Assignment to the respective segments on the basis of the location of the branch or consolidated company produces the following breakdown:

2006 financial year Europe America Asia Other Total including countries € m Germany Net interest income 3,648 218 42 8 3,916 Provision for possible loan losses –889 – 11 – –878 Net interest income after provisioning 2,759 218 53 8 3,038 Net commission income 2,728 106 25 2 2,861 Trading profit 1,093 71 8 5 1,177 Net result on investments and securities portfolio (available for sale) 764 4 2 – 770 Other result –82 66 2 – –14 Revenue 7,262 465 90 15 7,832 Operating expenses 4,960 184 53 7 5,204 Operating profit 2,302 281 37 8 2,628 Risk-weighted assets according to BIS*) 213,929 10,593 2,542 542 227,606

*) excluding market risk

In the previous year, we achieved the following results in the geographical markets:

2005 financial year1) Europe America Asia Other Total including countries € m Germany Net interest income 2,937 175 46 9 3,167 Provision for possible loan losses –601 46 36 –2 –521 Net interest income after provisioning 2,336 221 82 7 2,646 Net commission income 2,339 52 21 3 2,415 Trading profit 670 9 3 3 685 Net result on investments and securities portfolio (available for sale) 651 –4 – – 647 Other result 15 83–26 Revenue 6,011 286 109 13 6,419 Operating expenses 4,360 122 55 125 4,662 Operating profit 1,651 164 54 –112 1,757 Risk-weighted assets according to BIS*) 129,795 12,016 3,523 711 146,045

*) excluding market risk

1) After adjustment due to change in the provision for possible loan losses. NOTES 143

Notes to the balance sheet

(41) Cash reserve

We include the following items in the cash reserve:

31.12.2006 31.12.2005 Change € m € m in % Cash on hand 754 597 26.3 Balances with central banks 4,375 4,868 –10.1 Debt issued by public-sector borrowers and bills of exchange rediscountable at central banks 838 3,163 –73.5 Total 5,967 8,628 –30.8

The balances with central banks include claims on the Bundesbank totalling €3,219m (previous year: €4,120m). The minimum reserve requirement to be met at end-December 2006 amounted to €2,355m (previous year: €1,899m).

(42) Claims on banks

total due on demand other claims 31.12.2006 31.12.2005 Change 31.12.2006 31.12.2005 31.12.2006 31.12.2005 € m € m in % € m € m € m € m German banks 41,650 39,123 6.5 7,082 5,211 34,568 33,912 Foreign banks 33,621 47,080 –28.6 9,104 11,602 24,517 35,478 Total 75,271 86,203 –12.7 16,186 16,813 59,085 69,390

The claims on banks include €21,513m (previous year: €11,432m) of loans to municipalities extended by the mortgage banks.

(43) Claims on customers

The claims on customers break down as follows:

31.12.2006 31.12.2005 Change € m € m in % Claims on domestic customers 205,929 112,607 82.9 Claims on foreign customers 88,542 41,067 · Total 294,471 153,674 91.6

Loans collateralized by real estate (loans with an LTV of up to 60%) and mortgage loans in an amount of €119,547m (previous year: €28,278m) as well as public sector loans of the mortgage banks in an amount of €69,495m (previous year: €27,075m) are included in claims on customers. 144 NOTES

(44) Claims on and liabilities to subsidiaries and equity investments

The claims on and liabilities to unconsolidated subsidiaries, associated companies and companies in which an equity investment exists are as follows:

31.12.2006 31.12.2005 Change € m € m in % Claims on banks 296 8,848 –96.7 Subsidiaries ––· Associated companies and companies in which an equity investment exists 296 8,848 –96.7 Claims on customers 324 154 · Subsidiaries 219 97 · Associated companies and companies in which an equity investment exists 105 57 84.2 Assets held for trading purposes 55 505 –89.1 Subsidiaries ––· Associated companies and companies in which an equity investment exists 55 505 –89.1 Investments and securities portfolio (available for sale) 225 1,217 –81.5 Subsidiaries ––· Associated companies and companies in which an equity investment exists 225 1,217 –81.5 Total 900 10,724 –91.6 Liabilities to banks 154 1,042 –85.2 Subsidiaries – – · Associated companies and companies in which an equity investment exists 154 1,042 –85.2 Liabilities to customers 88 66 33.3 Subsidiaries 43 39 10.3 Associated companies and companies in which an equity investment exists 45 27 66.7 Total 242 1,108 –78.2

(45) Total lending

31.12.2006 31.12.2005 Change € m € m in % Loans to banks 29,808 18,940 57.4 Loans to customers 286,664 145,700 96.7 Total 316,472 164,640 92.2

We distinguish loans from claims on banks and customers such that only those claims are shown as loans for which special loan agreements have been concluded with the borrowers. Therefore, interbank money-market transactions and repo transactions, for example, are not shown as loans. Acceptance credits are also included in loans to customers. NOTES 145

(46) Provision for possible loan losses

Provision for possible loan losses is made in accordance with rules that apply Group-wide and covers all discernible creditworthiness risks. On the basis of past experience, we have formed portfolio valuation allowances for the latent credit risk.

Specific valuation Portfolio valuation Total allowances1) allowances1) 2006 2005 2006 20052) 2006 20052) Change € m € m € m € m € m € m in % As of 1.1. 5,119 5,352 531 535 5,650 5,887 –4.0 Allocations 1,567 1,263 79 83 1,646 1,346 22.3 Deductions 1,860 1,529 54 90 1,914 1,619 18.2 of which: utilized 1,040 745 5 – 1,045 745 40.3 of which: reversals 820 784 49 90 869 874 –0.6 Changes in consolidated companies 2,264 3 296 1 2,560 4 · Exchange-rate changes/ transfers –24 30 – 2 –24 32 · Provision for possible loan losses as of 31.12. 7,066 5,119 852 531 7,918 5,650 40.1

With direct write-downs and income received on previously written-down claims taken into account, the allocations and reversals reflected in the income statement gave rise to a provision of €878m (previous year2): €521m).

Provision for possible risks was formed for:

31.12.2006 31.12.20052) Change € m € m in % Claims on banks 15 20 –25.0 Claims on customers 7,356 5,161 42.5 Provision to cover balance-sheet items 7,371 5,181 42.3 Guarantees, endorsement liabilities, credit commitments 547 469 16.6 Total 7,918 5,650 40.1

1) Including provisions. 2) After adjustment due to change in the provision for possible loan losses. 146 NOTES

The provision for credit risk by customer group breaks down as follows:

Specific valuation Loan losses1) Net allocation2) to allowances and in 2006 valuation allowances provisions for and provisions in € m lending business lending business German customers 6,537 1,120 724 Companies and self-employed 5,396 814 433 Manufacturing 688 133 75 Construction 380 29 28 Distributive trades 418 83 39 Services, incl. professions, and others 3,910 569 291 Other retail customers 1,141 306 291 Foreign customers 529 51 23 Banks 5 – –11 Corporate and retail customers 524 51 34 Total 7,066 1,171 747

1) Direct write-downs, utilized specific valuation allowances and provisions in lending business. 2) Allocation less reversals.

Data on provision for credit risk:

in % 2006 20056) Allocation ratio3) 0.31 0.32 Write-off ratio4) 0.41 0.48 Cover ratio5) 2.82 3.30

3) Net provisioning (new provisions less reversals of valuation allowances and provision for commercial loans, plus the balance of direct write-downs and income received on previously written-down claims) as a percentage of the average total lending.

4) Defaults (utilized valuation allowances and provision for commercial loans, plus the balance of direct write-downs and income received on previously written-down claims) as a percentage of the average total lending.

5) Existing provisions (level of valuation allowances and provisions for credit risk in commercial lending) as a percentage of the average total lending.

6) After adjustment due to change in the provision for possible loan losses. NOTES 147

(47) Positive fair values attributable to derivative hedging instruments

Derivative instruments used for hedging purposes and for These instruments are valued at their fair value. For hedge accounting and also showing a positive fair value the most part, interest-rate and interest-rate/currency appear under this item in the balance sheet. swaps are used as hedging instruments.

31.12.2006 31.12.2005 Change € m € m in % Positive fair values from allocated effective fair value hedges 4,603 3,011 52.9 Positive fair values from allocated effective cash flow hedges 2,376 1,723 37.9 Total 6,979 4,734 47.4

(48) Assets held for trading purposes

The Group’s trading activities include trading in bonds, The positive fair values also include financial instru- notes and other interest-rate related securities, shares ments which cannot be used as hedging instruments in and other equity related securities, promissory notes, for- hedge accounting. eign exchange, precious metals and derivative financial instruments. All the items in the trading portfolio are shown at their fair value.

31.12.2006 31.12.2005 Change € m € m in % Bonds, notes and other interest-rate related securities 25,351 23,367 8.5 Money-market instruments 1,121 1,332 –15.8 issued by public-sector borrowers 88 341 –74.2 issued by other borrowers 1,033 991 4.2 Bonds and notes 22,430 20,748 8.1 issued by public-sector borrowers 6,747 6,498 3.8 issued by other borrowers 15,683 14,250 10.1 Promissory notes 1,800 1,287 39.9 Shares and other equity related securities 7,787 8,417 –7.5 Positive fair values attributable to derivative financial instruments 52,389 68,537 –23.6 Currency-related transactions 3,638 4,136 –12.0 Interest-related transactions 42,051 58,370 –28.0 Other transactions 6,700 6,031 11.1 Total 85,527 100,321 –14.7

€27,378m (previous year: €26,685m) of the bonds, notes and other interest-rate related securities and also shares and other equity related securities were listed securities. 148 NOTES

(49) Investments and securities portfolio (available for sale)

The investments and securities portfolio represents held for trading purposes, investments, holdings in asso- financial instruments not assigned to any other category. ciated companies valued at equity and holdings in sub- It includes all bonds, notes and other interest-rate related sidiaries not included in the consolidation. securities, shares and other equity related securities not

31.12.2006 31.12.20051) Change € m € m in % Bonds, notes and other interest-rate related securities 130,603 77,539 68.4 Money-market instruments 1,883 1,926 –2.2 issued by public-sector borrowers 941 13 · issued by other borrowers 942 1,913 –50.8 Bonds and notes 128,720 75,613 70.2 issued by public-sector borrowers 73,355 36,302 · issued by other borrowers 55,365 39,311 40.8 Shares and other equity related securities 2,407 2,402 0.2 Investments 1,850 2,537 –27.1 of which: in banks 361 1,181 –69.4 Investments in associated companies 298 3,610 –91.7 of which: in banks 236 3,547 –93.3 Holdings in subsidiaries 133 120 10.8 of which: in banks – – · Total 135,291 86,208 56.9 of which: valued at amortized cost 373 709 –47.4

Fair values of listed financial investments:

31.12.2006 31.12.2005 € m€ m Bonds, notes and other interest-rate related securities 117,229 68,544 Shares and other equity related securities 1,577 1,057 Investments 1,610 1,946 Total 120,416 71,547

1) After adjustment due to change in the provision for possible loan losses. NOTES 149

(50) Intangible assets

31.12.2006 31.12.2005 Change € m € m in % Goodwill 1,287 758 69.8 Other intangible assets 393 215 82.8 Total 1,680 973 72.7

Goodwill arising from companies shown at equity is con- A preliminary valuation of customer relations and tained in investments in associated companies (€3m). brand names was undertaken on the occasion of the Of the other intangible assets, capitalized software acquisition of the majority of Eurohypo’s shares. On the accounted for €224m (previous year: €208m), acquired balance-sheet date, the final valuation was carried out in customer relationships for €74m and the Eurohypo brand relation to the date of purchase as at March 31, 2006. The name for €95m. valuation has been confirmed by an external expert.

(51) Fixed assets

31.12.2006 31.12.2005 Change € m € m in % Land and buildings 836 663 26.1 Office furniture and equipment 552 628 –12.1 Leased equipment*) – 234 · Total 1,388 1,525 –9.0

*) included in other assets starting in 2006 150 NOTES

(52) Changes in book value of fixed assets and investments

The following changes were registered for intangible and fixed assets, and also for investments, investments in associated companies and subsidiaries in the past financial year:

Intangible assets Fixed assets Goodwill Other Land Office intangible and furniture and € m assets buildings equipment Book value as of 1.1.2006 758 215 663 628 Cost of acquisition/production as of 1.1.2006 1,689 668 994 2,944 Additions in 2006 491 95 23 100 Disposals in 2006 –5358135 Transfers/changes in consolidated companies –83 401 277 67 Cost of acquisition/production as of 31.12.2006 2,097 1,111 1,236 2,976 Write-ups in 2006 – ––– Cumulative write-downs as of 1.1.2006 931 453 331 2,316 Changes in exchange rates – – 3 1 Additions in 2006 20 97 37 201 Disposals in 2006 – 35 9 130 Transfers/changes in consolidated companies –141 203 38 36 Cumulative write-downs as of 31.12.2006 810 718 400 2,424 Book value as of 31.12.2006 1,287 393 836 552

Investments Investments Shares in associated in € m companies1) subsidiaries Cost of acquisition2) as of 1.1.2006 2,252 3,670 199 Additions in 2006 244 – 13 Disposals in 2006 1,143 3 8 Transfers/changes in consolidated companies –4 –3,520 21 Cost of acquisition as of 31.12.2006 1,349 147 225 Write-ups in 2006 – – – Cumulative write-downs as of 1.1.2006 699 612 79 Additions in 2006 6 – 7 Disposals in 2006 344 3 – Transfers/changes in consolidated companies/changes in exchange rates 1 –605 7 Cumulative write-downs as of 31.12.2006 362 4 93 Cumulative changes from the fair value or at equity valuation 863 155 1 Fair value as of 1.1.2006 2,537 3,610 120 Fair value as of 31.12.2006 1,850 298 133

1) After adjustment due to change in the provision for possible loan losses. 2) Adjustment of the year-ago figures due to a change in presentation method. NOTES 151

(53) Tax assets

31.12.2006 31.12.20051) Change € m € m in % Current tax assets 872 400 · Germany 796 350 · Abroad 76 50 52.0 Deferred tax claims 5,046 5,203 –3.0 Deferred taxes carried as assets 5,046 5,203 –3.0 Total 5,918 5,603 5.6

Deferred taxes represent the potential income-tax relief For loss carry-forwards in an amount of €3,316m arising from temporary differences between the values (corporation tax) and €3,071m (trade earnings tax) no assigned to assets and liabilities in the consolidated deferred tax position was created due to the limited plan- balance sheet in accordance with IAS/IFRS and their ning horizon. For the most part, there are no time limits on values for tax-accounting purposes in accordance with the use of the existing tax loss carry-forwards. the local tax regulations for consolidated companies. Deferred taxes carried as assets were formed in con- Altogether, the deferred tax claims and liabilities directly nection with the following balance-sheet items: set off against equity as of December 31, 2006 were €222m.

31.12.2006 31.12.20051) Change € m € m in % Fair values of derivative hedging instruments 1,720 2,325 –26.0 Assets held for trading purposes and liabilities from trading activities 1,213 1,654 –26.7 Claims on banks and customers 572 221 · Investments and securities portfolio 522 29 · Provisions 371 262 41.6 Liabilities to banks and customers 29 133 –78.2 Sundry balance-sheet items 277 241 14.9 Tax loss carry-forwards 342 338 1.2 Total 5,046 5,203 –3.0

(54) Other assets

Other assets mainly comprise the following items:

31.12.2006 31.12.2005 Change € m € m in % Collection items 758 182 · Precious metals 1,013 982 3.2 Leased equipment 259 – · Assets held for sale 160 228 –29.8 Assets held as financial investments 289 – · Sundry assets, including deferred items 739 813 –9.1 Total 3,218 2,205 45.9

1) After adjustment due to change in the provision for possible loan losses. 152 NOTES

Changes in the leased equipment and in assets held for sale and as a financial investment break down as follows:

Leased Assets Assets held equipment held for sale as financial € m investments Cost of acquisition/production as of 1.1.2006 331 256 – Additions in 2006 90 – 18 Disposals in 2006 92 64 23 Transfers/changes in consolidated companies –3 90 310 Cost of acquisition/production as of 31.12.2006 326 282 305 Cumulative write-downs as of 1.1.2006 97 28 – Additions in 2006 47 – 10 Disposals in 2006 76 – – Transfers/changes in consolidated companies/changes in exchange rates –1 94 6 Cumulative write-downs as of 31.12.2006 67 122 16 Cumulative changes from the fair value valuation – – – Fair value as of 1.1.2006 234 228 – Fair value as of 31.12.2006 259 160 289

(55) Liabilities to banks

total 31.12.2006 31.12.2005 Change € m € m in % German banks 62,993 58,517 7.6 Foreign banks 62,832 71,383 –12.0 Total 125,825 129,900 –3.1

of which: due on demand other liabilities 31.12.2006 31.12.2005 31.12.2006 31.12.2005 € m € m€ m€ m German banks 4,331 5,358 58,662 53,159 Foreign banks 9,864 9,833 52,968 61,550 Total 14,195 15,191 111,630 114,709 NOTES 153

(56) Liabilities to customers

Liabilities to customers consist of savings deposits, demand deposits and time deposits, including savings certificates.

total 31.12.2006 31.12.2005 Change € m € m in % German customers 112,513 73,258 53.6 Corporate customers 78,978 42,735 84.8 Retail customers and others 29,861 27,834 7.3 Public sector 3,674 2,689 36.6 Foreign customers 28,701 29,588 –3.0 Corporate and retail customers 27,056 28,057 –3.6 Public sector 1,645 1,531 7.4 Total 141,214 102,846 37.3

Savings deposits Other liabilities due on demand with agreed lifetime or period of notice € m 31.12.2006 31.12.2005 31.12.2006 31.12.2005 31.12.2006 31.12.2005 German customers 9,756 11,238 35,636 30,217 67,121 31,803 Corporate customers 50 62 22,554 19,145 56,374 23,528 Retail customers and others 9,691 11,141 12,354 10,620 7,816 6,073 Public sector 15 35 728 452 2,931 2,202 Foreign customers 1,177 1,194 13,509 10,972 14,015 17,422 Corporate and retail customers 1,176 1,193 13,170 10,585 12,710 16,279 Public sector 1 1 339 387 1,305 1,143 Total 10,933 12,432 49,145 41,189 81,136 49,225

Savings deposits break down as follows:

31.12.2006 31.12.2005 Change € m € m in % Savings deposits with agreed period of notice of three months 10,181 11,549 –11.8 Savings deposits with agreed period of notice of more than three months 752 883 –14.8 Total 10,933 12,432 –12.1 154 NOTES

(57) Securitized liabilities

Securitized liabilities consist of bonds and notes, including mortgage and public-sector Pfandbriefe, money-market instruments (e.g. certificates of deposit, Euro-notes, commercial paper), index certificates, own acceptances and promissory notes outstanding.

total of which: issued by mortgage banks 31.12.2006 31.12.2005 31.12.2006 31.12.2005 € m € m€ m€ m Bonds and notes issued 209,778 85,235 178,729 65,162 Money-market instruments issued 18,966 11,608 8,739 3,685 Own acceptances and promissory notes outstanding 9 77 – – Total 228,753 96,920 187,468 68,847

The nominal interest paid on money-market paper ranges vious year: €55bn) of the bonds and notes have an original from 0.10% to 29.00% (previous year: 2.00% to 26.07%); lifetime of more than four years. Mortgage Pfandbriefe in for bonds and notes, from 0.10% to 15.85% (previous an amount of €33,251m and public-sector Pfandbriefe year: 0.0619% to 17.00%). The original maturity periods in an amount of €124,913m are included in securitized for money-market paper are up to one year. €120bn (pre- liabilities.

The following table presents the most important bonds and notes issued in the 2006 financial year:

Equivalent Currency Issuer Interest rate Maturity in € m % date 3,000 EUR Eurohypo AG 3.000 2012 2,500 EUR Hypothekenbank in Essen AG 3.000 2009 2,000 EUR Eurohypo AG 3.750 2011 1,850 EUR Hypothekenbank in Essen AG 3.500 2007 1,500 EUR Hypothekenbank in Essen AG 3.625 2010 1,250 EUR Hypothekenbank in Essen AG 2.750 2007 1,250 EUR Hypothekenbank in Essen AG 3.461 2008 1,200 EUR Hypothekenbank in Essen AG 3.750 2012 1,000 EUR Hypothekenbank in Essen AG 3.625 2007 1,000 EUR Hypothekenbank in Essen AG 3.875 2013 1,000 EUR Hypothekenbank in Essen AG 3.875 2016 NOTES 155

(58) Negative fair values attributable to derivative hedging instruments

Derivative instruments not serving trading purposes but These financial instruments are valued at their fair used for effective hedging and showing a negative fair value. For the most part, interest-rate and interest-rate/ value appear under this item in the balance sheet. currency swaps are used as hedging instruments.

31.12.2006 31.12.2005 Change € m € m in % Negative fair values from allocated effective fair value hedges 10,475 5,447 92.3 Negative fair values from allocated effective cash flow hedges 3,644 4,392 –17.0 Total 14,119 9,839 43.5

(59) Liabilities from trading activities

Liabilities from trading activities shows the negative fair values of derivative financial instruments not employed as hedging instruments in connection with hedge accounting. Delivery commitments arising from short sales of securities are also included under liabilities from trading activities.

31.12.2006 31.12.2005 Change € m € m in % Currency-related transactions 3,921 4,070 –3.7 Interest-rate-related transactions 43,515 60,767 –28.4 Delivery commitments arising from short sales of securities 3,937 3,299 19.3 Sundry transactions 7,875 6,863 14.7 Total 59,248 74,999 –21.0

(60) Provisions

Provisions break down as follows:

31.12.2006 31.12.20051) Change € m € m in % Provisions for pensions and similar commitments 612 1,587 –61.4 Other provisions 2,734 2,098 30.3 Total 3,346 3,685 –9.2

Pension obligations are calculated out annually by inde- parameters and the bases of calculation amounting to pendent actuaries, applying the projected unit credit €250m (previous year: €351m), a change in the up to now method. unrealized retroactive service cost in the amount of €1m The projected unit credit for pension commitments (previous year: €0m) – in total €251m (actuarial loss) – and (DBO) as of December 31, 2006, was €2,513m (previous changes in the fair value of plan assets of €1,650m (pre- year: €2,078m). The difference between this figure and the vious year: €140m). pension provisions is the result of changes to the actuarial

1) After adjustment due to change in the provision for possible loan losses. 156 NOTES

The pension obligations changed as follows:

2006 2005 € m€ m Pension obligations as of January 1 2,078 1,797 Allocation to provisions for pensions 206 190 Service cost 45 32 Interest cost 98 84 Cost of early retirement and part-time scheme for older staff 23 29 Amortization of actuarial losses 40 45 Pension benefits –141 –115 Change to the actuarial gains/losses –100 196 Difference between expected and current income from plan assets 49 –3 Other changes, amongst others due to changes in the list of consolidated companies 421 13 Pension obligations as of December 31 2,513 2,078

Pension costs in the year under review amount to €192m (previous year: €206m), of which €168m relates to the allocation to provisions for pensions (previous year: €185m). The income statement was also credited with the expected income from plan assets of €38m (previous year: €5m).

The size of the provision for defined-benefit commitments is calculated in accordance with actuarial methods. The following assumptions are made:

31.12.2006 31.12.2005 in % in % Calculatory interest rate 4.50 4.25 Change in salaries 2.50 2.50 Adjustment to pensions 1.60 1.40 Expected returns from plan assets 3.25-4.50 3.25

The changes in the assets held in trust at Commerzbank Pension Trust e.V., which count as plan assets pursuant to IAS 19.7, were as follows:

2006 2005 € m € m Fair value as of January 1 140 147 Allocation/withdrawal*) 1,423 –9 Expected income from plan assets 38 5 Actuarial gains/losses 49 –3 Benefits paid – – Fair value as of Dezember 31 1,650 140

*) For the allocation to assets in the financial year 2006, refer to note 22. NOTES 157

The breakdown of the outsourced plan assets to cover pension commitments as of the respective balance sheet dates was as follows:

2006 2005 in % in % Equities 18.8 – Fixed-income securities 63.0 98.2 Investment funds 15.9 – Other 2.3 1.8

The pension provisions changed as follows in the past financial year:

as of Pension Additions Change in Transfers/ as of 1.1.2006 payments plan assets1) changes in 31.12.2006 consolidated € m companies Pension entitlements of active and former employees and pensioners 1,559 97 205 1,460 335 542 Early retirement 15 22 –20 – 82 55 Part-time scheme for older staff 13 22 21 1 4 15 Total 1,587 141 206 1,461 421 612

For the most part, provisions for pensions and similar (including pension guidelines, pension scheme, contri- commitments represent provisions for obligations to pay bution-based pension plan, individual pension commit- company retirement pensions on the basis of direct com- ments), which mainly depends upon when the employee mitments of benefits. The type and scale of the retirement joined the Bank. On this basis, pensions are paid to pensions for employees entitled to benefits are deter- employees reaching retirement age, or earlier in the case mined by the terms of the pension arrangement applied of invalidity or death (see also Note 22).

Changes in other provisions:

as of Utilized Reversals Allocation/changes as of 1.1.20062) in consolidated 31.12.2006 € m companies Personnel area 792 586 39 922 1,089 Restructuring measures 99 34 3 309 371 Specific risks in lending business 305 8 85 144 356 Portfolio risks in lending business 164 – 10 37 191 Bonuses for special savings schemes 80 17 2 25 86 Legal proceedings and recourse claims 125 16 34 71 146 Sundry items 533 319 41 322 495 Total 2,098 980 214 1,830 2,734

The provisions in the personnel area basically relate to provisions for various types of bonuses, to be paid to employees of the Group in the first half of 2007. Most of the other provisions fall due on a short-term basis.

1) As far as taken into account within the framework of determining provisions. 2) After adjustment due to change in the provision for possible loan losses. 158 NOTES

(61) Tax liabilities

31.12.2006 31.12.2005 Change € m € m in % Current income-tax liabilities 457 229 99.6 Income-tax liabilities to tax authorities 171 4 · Provisions for income taxes 286 225 27.1 Deferred income-tax liabilities 3,670 3,477 5.6 Deferred taxes carried as liabilities 3,670 3,477 5.6 Total 4,127 3,706 11.4

Provisions for taxes on income are possible tax liabilities temporary differences between the values assigned for which no final formal assessment note has been to assets and liabilities in the consolidated balance sheet received. The liabilities to tax authorities represent pay- in accordance with IAS/IFRS and their values for tax- ment obligations from current taxes towards German and accounting purposes in accordance with the local tax foreign tax authorities. Deferred taxes on the liabilities regulations for consolidated companies. side represent the potential income-tax burden from

Deferred tax liabilities were formed in connection with the following items:

31.12.2006 31.12.2005 Change € m € m in % Assets held for trading purposes and liabilities from trading activities 831 1,043 –20.3 Fair values of derivative hedging instruments 1,446 1,018 42.0 Investments and securities portfolio 237 490 –51.6 Claims on banks and customers 316 340 –7.1 Liabilities to banks and customers 202 44 · Securitized liabilities 187 52 · Sundry balance-sheet items 451 490 –8.0 Total 3,670 3,477 5.6

(62) Other liabilities

Other liabilities of €1,582m (previous year: €1,337m) deferred liabilities. In addition, liabilities in an amount of include obligations arising from still outstanding in- €7m were included in this position, which stand in relation voices, deductions from salaries to be passed on and to assets yet to be disposed of. NOTES 159

(63) Subordinated capital

Subordinated capital breaks down as follows:

31.12.2006 31.12.2005 Change € m € m in % Subordinated liabilities 9,240 5,410 70.8 of which: Tier-III capital as defined in Art. 10(7), KWG 77 – · of which: maturing within two years 969 829 16.9 Profit-sharing certificates outstanding 1,616 1,895 –14.7 of which: maturing within two years 508 673 –24.5 Deferred interest, incl. discounts 233 159 46.5 Valuation effects 185 679 –72.8 Total 11,274 8,143 38.5

Subordinated liabilities are own funds as defined in The issuer cannot be obliged to make premature re- Art. 10(5a), KWG. The claims of creditors to repayment payment. In the event of insolvency or winding-up, sub- of these liabilities are subordinate to those of other ordinated liabilities may only be repaid after the claims of creditors. all senior creditors have been met.

At end-2006, the following major subordinated liabilities were outstanding:

Start of maturity € m Currency in m Issuer Interest rate Maturity date 2006 1,250 1,250 EUR Commerzbank AG 4.125 2016 2000 600 600 EUR Commerzbank AG 6.500 2010 1999 550 550 EUR Commerzbank AG 4.750 2009 2001 500 500 EUR Commerzbank AG 6.125 2011 1999 300 300 EUR Commerzbank AG 6.250 2009 1997 298 200 GBP Commerzbank AG 7.875 2007 2002 275 275 EUR Commerzbank AG 5.500 2008 2001 250 250 EUR Commerzbank AG 5.500 2011 2003 250 250 EUR Eurohypo AG 5.000 2016 1999 223 150 GBP Commerzbank AG 6.625 2019 2003 220 220 EUR Eurohypo AG 5.000 2014 2006 196 300 CAD Commerzbank AG 4.500 2016 2003 150 150 EUR Eurohypo AG 5.750 2012

In the year under review, the interest paid by the Group for subordinated liabilities totalled €428m (previous year: €347m). Deferred interest expenses for interest due but not yet paid are shown at €202m (previous year: €128m). 160 NOTES

Profit-sharing certificates outstanding form part of the are made only if the issuing institution achieves a distrib- Bank’s liable equity capital in accordance with the pro- utable profit. The claims of holders of profit-sharing cer- visions of the German Banking Act (Art. 10(5), KWG). They tificates to a repayment of principal are subordinate to are directly affected by current losses. Interest payments those of other creditors.

At end-2006, the following major profit-sharing certificates were outstanding:

Start of maturity € m Issuer Interest rate Maturity date 2000 320 Commerzbank AG 6.375 2010 1994 256 Commerzbank AG 3.899 2006 1996 256 Commerzbank AG 7.900 2008 1997 133 Eurohypo AG 6.875 2007

Interest to be paid for the 2006 financial year on the profit-sharing certificates outstanding amounts to €122m (previous year: €134m). Deferred interest expenses for interest due but not yet paid are shown at €117m (previous year: €122m).

(64) Hybrid capital

31.12.2006 31.12.2005 Change € m € m in % Hybrid capital 3,389 – · Deferred interest, incl. discounts 132 – · Valuation effects 19 – · Total 3,540 – ·

At end-2006, the following material hybrid capital instruments were outstanding:

Start of maturity € m Currency in m Issuer Interest rate Maturity date 2006 1,191 800 GBP Commerzbank Capital Funding Trust II 5.905 unlimited lifetime 2006 1,000 1,000 EUR Commerzbank Capital Funding Trust I 5.012 unlimited lifetime 2003 600 600 EUR Eurohypo Capital Funding Trust I 6.445 unlimited lifetime 2006 300 300 EUR Commerzbank Capital Funding Trust III 5.250 unlimited lifetime 2005 300 300 EUR Eurohypo Capital Funding Trust II 6.750 unlimited lifetime

In the 2006 financial year, interest payable on hybrid capital in an amount of €134m accrued. NOTES 161

(65) Equity structure

31.12.2006 31.12.20051) € m€ m a) Subscribed capital 1,705 1,705 b) Capital reserve 5,676 5,686 c) Retained earnings 5,166 4,033 d) Revaluation reserve 1,746 1,995 e) Valuation of cash flow hedges –381 –1,069 f) Reserve from currency translation –143 –107 g) Consolidated profit 493 328 Total before minority interests 14,262 12,571 Minority interests 1,049 947 Equity 15,311 13,518

a) Subscribed capital

The subscribed capital (share capital) of Commerzbank Aktiengesellschaft consists of no-par-value shares, each with an accounting par value of €2.60. The shares are issued in the form of bearer shares.

Units Number of shares outstanding on 1.1.2006 655,699,261 plus: treasury shares on 31.12. of the previous year 1,113,296 Issue of new shares (including shares issued to employees) 355,984 Number of shares issued on 31.12.2006 657,168,541 less: treasury shares on balance-sheet date 1,582,726 Number of shares outstanding on 31.12.2006 655,585,815

Before treasury shares are deducted, the subscribed capi- No preferential rights or restrictions on the payment tal stands at €1,709m. of dividends exist at Commerzbank Aktiengesellschaft. All the issued shares have been fully paid up.

1) After adjustment due to change in the provision for possible loan losses. 162 NOTES

The value of issued, outstanding and authorized shares is as follows:

31.12.2006 31.12.2005 € m 1,000 units € m 1,000 units Shares issued 1,709 657,169 1,708 656,813 – Treasury shares 4 1,583 3 1,113 = Shares outstanding (subscribed capital) 1,705 655,586 1,705 655,700 + Shares not yet issued from authorized capital 852 327,610 471 181,036 Total 2,557 983,196 2,176 836,736

The number of authorized shares is 984,779 thousand As of December 31, 2006, 3,422 thousand shares (pre- units (previous year: 837,849 thousand units). The ac- vious year: 3,627 thousand shares) had been pledged with counting par value of the authorized shares is €2,561m the Group as collateral. This represents 0.5% (previous year: (previous year: €2,179m). 0.6%) of the shares outstanding on the balance-sheet date.

Securities transactions in treasury shares pursuant to Art. 71(1), nos. 1 and 7 of the German Companies Act (AktG)

Number of Accounting*) par Percentage of shares in units value in €1,000 share capital Portfolio on 31.12.2006 1,582,726 4,115 0.24 Largest total acquired during the financial year 3,373,985 8,772 0.51 Total shares pledged by customers as collateral on 31.12.2006 3,422,273 8,898 0.52 Shares acquired during the financial year 151,120,562 392,913 – Shares disposed of during the financial year 150,651,132 391,693 –

*) accounting par value per share €2.60

b) Capital reserve d) Revaluation reserve The capital reserve shows, in addition to premiums from The results of revaluing the investments and securities the issue of shares, fair values of share-based remunera- portfolio – consisting of interest-bearing and dividend- tion transactions in equity instruments that have not yet based instruments – at fair value, with deferred taxes been exercised. In addition, the capital reserve contains taken into consideration, appear under this equity item. amounts realized for conversion and option rights en- Gains or losses appear in the income statement only when titling holders to purchase shares when bonds and notes the asset has been disposed of or written off. were issued. e) Valuation of cash flow hedges c) Retained earnings The result of valuing effective hedges used in cash flow Retained earnings consist of the legal reserve and other hedges appears, after deferred taxes have been taken into reserves. The legal reserve contains those reserves which consideration, under this equity item. have to be formed in accordance with national law; in the parent company financial statements the amounts f) Reserve from currency translation assigned to this reserve may not be distributed. The over- The reserve from currency translation relates to trans- all amount of retained earnings shown in the balance lation gains and losses arising through the consolidation sheet consists of €3m of legal reserves (previous year: of capital accounts. Exchange-rate differences that arise €3m) and €5,163m (previous year1): €4,030m) of other through the consolidation of subsidiaries and associated revenue reserves. companies are included here.

1) After adjustment due to change in the provision for possible loan losses. NOTES 163

(66) Conditional capital

Conditional capital is intended to be used for the issue of convertible bonds or bonds with warrants and also of profit- sharing certificates with conversion or option rights.

Changes in the Bank’s conditional capital:

Conditional Additions Expiring/ Conditional of which: capital used capital used avai- 1.1.2006 31.12.2006 conditional lable € m capital lines Convertible bonds/bonds with warrants/ profit-sharing rights 403 – – 403 – 403 Total 403 – – 403 – 403

As resolved by the AGM of May 30, 2003, the Bank’s Companies Act – Aktiengesetz) exercise their conversion share capital has been conditionally increased by up to or option rights, or the holders or creditors of the con- €403,000,000. Such conditional capital increase will only vertible bonds or convertible profit-sharing rights to be be effected to the extent that the holders or creditors of the issued by May 30, 2008 by either Commerzbank Aktien- convertible bonds, bonds with warrants or profit-sharing gesellschaft or companies in which Commerzbank Aktien- rights – carrying conversion or option rights – to be issued gesellschaft directly or indirectly holds a majority interest by May 30, 2008, by either Commerzbank Aktiengesell- (group companies as defined in Art. 18(1) of the German schaft or companies in which Commerzbank Aktien- Companies Act – Aktiengesetz) meet their obligation to gesellschaft directly or indirectly holds a majority interest exercise their conversion rights. (group companies as defined in Art. 18(1) of the German 164 NOTES

(67) Authorized capital

Date of Original Used in previous years Used in 2006 Authorization Remaining Date of AGM amount for capital increases for capital increases expired amount expiry resolution € m € m € m € m € m 31.05.2002 30 9 1 – 20 30.04.2007 12.05.2004 225 – – – 225 30.04.2009 12.05.2004 225 – – – 225 30.04.2009 17.05.2006 170 – – – 170 30.04.2011 17.05.2006 200 – – – 200 30.04.2011 17.05.2006 12 – – – 12 30.04.2011 Total 862 9 1 – 852

The Board of Managing Directors is authorized to in- 2004/II). On principle, shareholders are to be offered crease, with the approval of the Supervisory Board, the subscription rights; however, the Board of Managing share capital of the Bank by April 30, 2007, through the Directors may, with the approval of the Supervisory issue of new no-par-value shares against cash, in either Board, exclude shareholders’ subscription rights to the one or several tranches, by a maximum amount of al- extent necessary to offer to the holders of conversion or together €19,768,703.60, thereby excluding the subscrip- option rights, either already issued or still to be issued tion rights of shareholders for the purpose of issuing by Commerzbank Aktiengesellschaft or by companies in these shares to the Bank’s staff. which Commerzbank Aktiengesellschaft directly or indi- The Board of Managing Directors is authorized, with rectly holds a majority interest (group companies as de- the approval of the Supervisory Board, to increase the fined in Art. 18(1) of the German Companies Act – Aktien- Company’s share capital by April 30, 2009, through the gesetz), subscription rights to the extent to which they issue of new no-par-value shares against cash, in either would be entitled after they have exercised their con- one or several tranches, but by a maximum amount of version or option rights. In addition, any fractional €225,000,000 (authorized capital 2004/I). On principle, amounts of shares may be excluded from shareholders’ shareholders are to be offered subscription rights; subscription rights. however, the Board of Managing Directors may, with the Furthermore, the Board of Managing Directors may, approval of the Supervisory Board, exclude shareholders’ with the approval of the Supervisory Board, exclude subscription rights to the extent necessary to offer to shareholders’ subscription rights insofar as the capital the holders of conversion or option rights, either already increase is made against contributions in kind for the pur- issued or still to be issued by Commerzbank Aktiengesell- pose of acquiring companies or interests in companies. schaft or by companies in which Commerzbank Aktien- The Board of Managing Directors is authorized, with gesellschaft directly or indirectly holds a majority interest the approval of the Supervisory Board, to increase the (group companies as defined in Art. 18(1) of the German Company’s share capital by April 30, 2011, through the Companies Act – Aktiengesetz), subscription rights to the issue of new no-par-value shares against cash, in either extent to which they would be entitled after they have one or several tranches, but by a maximum amount of exercised their conversion or option rights. In addition, €170,000,000.00 (authorized capital 2006/I). The Board of any fractional amounts of shares may be excluded from Managing Directors may, with the approval of the Super- shareholders’ subscription rights. visory Board, exclude shareholders’ subscription rights The Board of Managing Directors is authorized, with if the issue price of the new shares is not substantially the approval of the Supervisory Board, to increase the lower than that of already listed shares offering the same Company’s share capital by April 30, 2009 through the conditions. issue of new no-par-value shares against cash or contri- The Board of Managing Directors is authorized, with butions in kind, in either one or several tranches, but by the approval of the Supervisory Board, to increase the a maximum amount of €225,000,000 (authorized capital Company’s share capital by April 30, 2011, through the NOTES 165

issue of new no-par-value shares against cash or contri- Furthermore, the Board of Managing Directors may, butions in kind, in either one or several tranches, but by a with the approval of the Supervisory Board, exclude share- maximum amount of €200,000,000.00 (authorized capital holders’ subscription rights provided the capital increase 2006/II). On principle, shareholders are to be offered sub- is made against contributions in kind for the purpose of scription rights; however, the Board of Managing Direc- acquiring companies or investments in companies. tors may, with the approval of the Supervisory Board, The Board of Managing Directors is authorized, with exclude shareholders’ subscription rights to the extent the approval of the Supervisory Board, to increase the necessary to offer to the holders of conversion or option Company’s share capital by April 30, 2011, through rights, either already issued or still to be issued by Com- the issue of new no-par-value shares against cash, in merzbank Aktiengesellschaft or by companies in which one or several tranches, but by a maximum amount Commerzbank Aktiengesellschaft directly or indirectly of €12,000,000.00 (authorized capital 2006/III) and thus holds a majority interest (group companies as defined in exclude shareholders' subscription rights for the purpose Art. 18(1) of the German Companies Act – Aktiengesetz), of issuing employee shares to staff of the Commerzbank subscription rights to the extent to which they would be Aktiengesellschaft and to companies in which the entitled after they have exercised their conversion or Commerzbank Aktiengesellschaft directly or indirectly option rights. In addition, any fractional amounts of shares holds an interest (group companies as defined in Art. may be excluded from shareholders’ subscription rights. 18(1) of the German Companies Act – Aktiengesetz).

(68) The Bank’s foreign-currency position

On December 31, 2006, the Commerzbank Group had the following foreign-currency assets and liabilities (excluding fair values of derivatives):

31.12.2006 31.12.2005 Change € m € m in % USD PLN GBP Others Total Total Cash reserve 140 1,188 25 352 1,705 1,750 –2.6 Claims on banks 8,023 367 1,080 3,242 12,712 16,115 –21.1 Claims on customers 24,209 3,093 11,168 14,258 52,728 32,847 60.5 Assets held for trading purposes 5,760 1,716 929 965 9,370 7,783 20.4 Investments and securities portfolio 19,823 750 2,532 5,674 28,779 12,580 · Other balance-sheet items 2,053 275 770 897 3,995 5,419 –26.3 Foreign-currency assets 60,008 7,389 16,504 25,388 109,289 76,494 42.9 Liabilities to banks 19,722 584 5,217 6,181 31,704 32,894 –3.6 Liabilities to customers 8,978 5,250 1,637 2,754 18,619 20,142 –7.6 Securitized liabilities 25,992 397 4,444 7,799 38,632 14,506 · Liabilities from trading activities 30 323 – 234 587 390 50.5 Other balance-sheet items 2,963 274 1,389 1,083 5,709 5,870 –2.7 Foreign-currency liabilities 57,685 6,828 12,687 18,051 95,251 73,802 29.1

Due to exchange-rate changes the consolidated balance- (previous year: +€7bn). The open balance-sheet positions sheet total contracted in the 2006 financial year by €5bn are matched by foreign-exchange forward contracts and (previous year: +€7bn). Total lending decreased by €2bn currency swaps of congruent maturity. 166 NOTES

Notes to financial instruments

(69) Derivative transactions

The tables below show the Commerzbank Group’s busi- For both regulatory reports and the internal measure- ness with derivative financial instruments as of the bal- ment and monitoring of our credit commitments, we use ance-sheet date. such risk-reducing techniques only if we consider them A derivative is a financial instrument whose value is enforceable under the jurisdiction in question, should the determined by a so-called underlying asset. The latter business associate become insolvent. In order to check may be, for example, an interest rate, a commodity price, enforceability, we avail ourselves of legal opinions from a share price, a currency rate or a bond price. various international law firms. Most derivatives transactions involve OTC deriva- Similar to the master agreements are the collateral tives, whose nominal amount, maturity and price are agreements (e.g. collateralization annex for financial agreed individually between the Bank and its counter- futures contracts, Credit Support Annex), which we con- parties. However, the Bank also concludes derivatives clude with our business associates to secure the net claim contracts on regulated stock exchanges. These are stan- or liability remaining after netting (receiving or furnishing dardized contracts with standardized nominal amounts of collateral). As a rule, this collateral management and settlement dates. reduces credit risk by means of prompt – mostly daily or The nominal amount specifies the business volume weekly – measurement and adjustment of the customer traded by the Bank. On the other hand, the positive or commitment. negative fair values appearing in the tables are the costs On average, we achieve a credit-risk mitigation of which would be incurred by the Bank or the counterparty 80.1% of the exposure for the derivatives contracts and in order to replace the originally concluded contracts with collateral covered by the process of risk-reducing tech- business having the same financial value. From the bank’s niques. point of view, a positive fair value thus indicates the The following overview shows the nominal amounts maximum potential counterparty-specific default risk and the fair values of the derivative business broken down that existed from derivative transactions on the balance- by interest-rate-based contracts, currency-based con- sheet date. tracts and contracts based on other price risks and the In order to minimize (reduce) both the economic and maturity structure of these transactions. Fair values the regulatory credit risk arising from these instruments, appear as the sum totals of the positive and negative our Legal Services department concludes master agree- amounts per contract, from which no pledged collateral ments (bilateral netting agreements) with our business has been deducted and no possible netting agreements associates (such as 1992 ISDA Master Agreement Multi- have been taken into consideration because these affect currency Cross-Border; German Master Agreement for all products. By definition, no positive fair values exist Financial Futures). By means of such bilateral netting for options sold. The nominal amount represents the agreements, the positive and negative fair values of gross volume of all sales and purchases. The maturity the derivatives contracts included under a master agree- dates listed for the transactions are based on the remain- ment can be offset against one another and the future ing period to maturity, taking the maturity of the contract regulatory risk add-ons for these products can be and not the maturity of the underlying. reduced. Through this netting process, the credit risk is limited to a single net claim on the party to the contract (close-out netting). NOTES 167

31.12.2006 Nominal amount Fair value Remaining lifetimes under 1-5 more total positive negative 1 year years than € m 5 years Foreign-currency-based forward transactions OTC products 213,833 116,533 73,929 404,295 4,419 4,567 Foreign-exchange spot and forward contracts 132,787 11,550 398 144,735 1,324 1,641 Interest-rate and currency swaps 49,095 91,771 69,487 210,353 2,574 2,463 Currency call options 14,817 6,184 2,467 23,468 474 – Currency put options 16,581 6,992 503 24,076 – 416 Other foreign-exchange contracts 553 36 1,074 1,663 47 47 Products traded on a stock exchange 955 14 – 969 – – Currency futures 955 14 – 969 – – Currency options – – – – – – Total 214,788 116,547 73,929 405,264 4,419 4,567 Interest-based forward transactions OTC products 1,789,964 1,861,388 1,681,510 5,332,862 48,238 56,973 Forward-rate agreements 167,030 6,896 – 173,926 61 67 Interest-rate swaps 1,597,030 1,758,452 1,605,485 4,960,967 46,217 54,167 Call options on interest-rate futures 14,615 40,919 32,280 87,814 1,864 – Put options on interest-rate futures 10,021 51,232 41,544 102,797 – 2,579 Other interest-rate contracts 1,268 3,889 2,201 7,358 96 160 Products traded on a stock exchange 69,579 5,016 4,118 78,713 – – Interest-rate futures 67,688 4,930 2,232 74,850 – – Interest-rate options 1,891 86 1,886 3,863 – – Total 1,859,543 1,866,404 1,685,628 5,411,575 48,238 56,973 Other forward transactions OTC products 76,008 134,734 18,287 229,029 6,711 7,890 Structured equity/index products 8,004 12,691 4,062 24,757 1,629 2,684 Equity call options 10,100 17,131 1,169 28,400 3,938 – Equity put options 12,267 17,446 943 30,656 – 4,198 Credit derivatives 42,282 86,721 12,113 141,116 899 847 Precious metal contracts 2,508 744 – 3,252 201 113 Other transactions 847 1 – 848 44 48 Products traded on a stock exchange 72,450 57,483 3,630 133,563 – – Equity futures 6,502 5 – 6,507 – – Equity options 65,792 57,442 3,630 126,864 – – Other futures 130 16 – 146 – – Other options 26 20 – 46 – – Total 148,458 192,217 21,917 362,592 6,711 7,890 Total immatured forward transactions OTC products 2,079,805 2,112,655 1,773,726 5,966,186 59,368 69,430 Products traded on a stock exchange 142,984 62,513 7,748 213,245 – – Total 2,222,789 2,175,168 1,781,474 6,179,431 59,368 69,430 168 NOTES

31.12.2005 Nominal amount Fair value Remaining lifetimes under 1-5 more total positive negative 1 year years than € m 5 years Foreign-currency-based forward transactions OTC products 244,699 127,298 65,671 437,668 4,385 4,494 Foreign-exchange spot and forward contracts 146,531 9,970 160 156,661 1,674 1,692 Interest-rate and currency swaps 56,683 101,236 62,055 219,974 2,101 2,200 Currency call options 20,874 8,353 1,725 30,952 610 – Currency put options 20,611 7,739 1,731 30,081 – 602 Other foreign-exchange contracts – – – – – – Products traded on a stock exchange 489 19 – 508 – – Currency futures 489 19 – 508 – – Currency options – – – – – – Total 245,188 127,317 65,671 438,176 4,385 4,494 Interest-based forward transactions OTC products 1,540,940 1,442,884 1,264,422 4,248,246 62,837 70,152 Forward-rate agreements 149,781 4,547 6 154,334 57 67 Interest-rate swaps 1,351,071 1,329,439 1,178,897 3,859,407 59,281 65,955 Call options on interest-rate futures 17,121 47,732 32,825 97,678 2,849 – Put options on interest-rate futures 18,779 51,625 40,091 110,495 – 3,235 Other interest-rate contracts 4,188 9,541 12,603 26,332 650 895 Products traded on a stock exchange 59,170 21,211 – 80,381 – – Interest-rate futures 49,760 21,211 – 70,971 – – Interest-rate options 9,410 – – 9,410 – – Total 1,600,110 1,464,095 1,264,422 4,328,627 62,837 70,152 Other forward transactions OTC products 47,183 162,409 14,407 223,999 6,049 6,893 Structured equity/index products 6,070 13,606 4,775 24,451 1,072 1,726 Equity call options 7,785 13,689 804 22,278 3,434 – Equity put options 8,216 14,298 532 23,046 – 3,602 Credit derivatives 20,290 119,978 8,296 148,564 1,263 1,360 Precious metal contracts 4,822 838 – 5,660 280 205 Other transactions – –– ––– Products traded on a stock exchange 50,458 44,186 3,139 97,783 – – Equity futures 5,077 – – 5,077 – – Equity options 45,381 44,186 3,139 92,706 – – Other futures – – – – – – Other options – – – – – – Total 97,641 206,595 17,546 321,782 6,049 6,893 Total immatured forward transactions OTC products 1,832,822 1,732,591 1,344,500 4,909,913 73,271 81,539 Products traded on a stock exchange 110,117 65,416 3,139 178,672 – – Total 1,942,939 1,798,007 1,347,639 5,088,585 73,271 81,539 NOTES 169

Breakdown of derivatives business, by borrower group:

The following table shows the positive and negative primarily with counterparties who have excellent credit fair values of the Commerzbank Group’s derivative ratings. A large portion of the fair values is concentrated business broken down by the respective counterparty. in banks and financial institutions based in OECD coun- The Commerzbank Group conducts derivative business tries.

31.12.2006 31.12.2005 Fair value Fair value € m positive negative positive negative OECD central governments 208 93 695 414 OECD banks 39,622 48,594 46,474 54,672 OECD financial institutions 17,721 18,704 23,815 24,635 Other companies, private individuals 1,500 1,826 1,946 1,547 Non-OECD banks 317 213 341 271 Total 59,368 69,430 73,271 81,539

We have reduced the volume of credit derivatives by 5% which serve to transfer credit risk, in both trading for compared to the previous year. Consequently the volume arbitrage purposes and in the investment area for diver- where the Commerzbank Group is a buyer of protection sifying our loan portfolios. The following table illustrates or a seller of protection amounts to €70,025m or €71,091m our risk structure in terms of the various risk assets that as of the balance sheet date. We employ these products, have been hedged.

Breakdown, by reference assets:

31.12.2006 31.12.2005 Nominal Nominal Buyer of Seller of Buyer of Seller of € m protection protection protection protection OECD central governments 2,202 4,699 2,511 2,674 OECD banks 4,619 4,952 5,922 6,111 OECD financial institutions 8,213 8,337 9,881 10,005 Other companies, private individuals 54,886 53,043 56,525 54,803 Non-OECD banks 105 60 95 37 Total 70,025 71,091 74,934 73,630 170 NOTES

(70) Use made of derivative financial instruments

31.12.2006 31.12.2005 Fair value Fair value € m positive negative positive negative Derivative financial instruments used for trading purposes 49,107 51,636 66,630 69,369 Hedging derivatives that cannot be used for hedge accounting 3,282 3,675 1,907 2,331 Derivatives used as hedging instruments 6,979 14,119 4,734 9,839 for fair value hedge accounting 4,603 10,475 3,011 5,447 for cash flow hedge accounting 2,376 3,644 1,723 4,392 Total 59,368 69,430 73,271 81,539

In the above table, we show the use made of our derivative financial instruments. We use derivatives for both trading and hedging purposes. In Notes 5, 12, 13, 20 and 21, we have described the above-mentioned criteria.

(71) Assets pledged as collateral

Assets in the amounts shown below were pledged as collateral for the following liabilities:

31.12.2006 31.12.2005 Change € m € m in % Liabilities to banks 80,097 76,850 4.2 Liabilities to customers 8,376 12,996 –35.5 Liabilities from trading activities 2,148 3,292 –34.8 Total 90,621 93,138 –2.7

The following assets were pledged as collateral for the above-mentioned liabilities:

31.12.2006 31.12.2005 Change € m € m in % Claims on banks and customers 17,413 15,871 9.7 Assets held for trading purposes and investments and securities portfolio 74,434 77,498 –4.0 Total 91,847 93,369 –1.6

The furnishing of collateral in order to borrow funds took the form of genuine securities repurchase agreements (repos). At the same time, collateral was furnished for funds borrowed for specific purposes and securities-lending transactions. NOTES 171

(72) Maturities, by remaining lifetime

Remaining lifetimes as of 31.12.2006 due on demand up to 3 months 1 year to more and unlimited 3 months to 1 year 5 years than € m lifetime 5 years Claims on banks 16,186 27,070 8,525 15,061 8,429 Claims on customers 19,881 44,723 30,658 99,635 99,574 Bonds, notes and other interest-rate related securities from assets held for trading purposes – 2,077 2,445 11,836 8,993 Bonds, notes and other interest-rate related securities held in investments and securities portfolio 17 6,799 6,997 39,428 77,362 Total 36,084 80,669 48,625 165,960 194,358 Liabilities to banks 14,195 73,027 12,564 10,861 15,178 Liabilities to customers 49,145 45,244 5,319 15,233 26,273 Securitized liabilities 61 25,358 47,067 120,773 35,494 Subordinated and hybrid capital*) – 301 473 5,038 8,433 Total 63,401 143,930 65,423 151,905 85,378

*) excl. deferred interest and discounts (€365m) and IAS measurement effects (€204m)

Remaining lifetimes as of 31.12.2005 due on demand up to 3 months 1 year to more and unlimited 3 months to 1 year 5 years than € m lifetime 5 years Claims on banks 16,813 35,004 19,529 7,129 7,728 Claims on customers 14,646 28,858 14,052 40,286 55,832 Bonds, notes and other interest-rate related securities from assets held for trading purposes – 2,194 1,688 9,594 9,891 Bonds, notes and other interest-rate related securities held in investments and securities portfolio 14 3,809 5,327 24,823 43,566 Total 31,473 69,865 40,596 81,832 117,017 Liabilities to banks 15,191 84,680 13,318 4,747 11,964 Liabilities to customers 41,189 48,019 3,609 3,187 6,842 Securitized liabilities 4 18,877 17,295 49,638 11,106 Subordinated and hybrid capital*) – 548 637 4,146 1,974 Total 56,384 152,124 34,859 61,718 31,886

*) excl. deferred interest (€159m) and IAS measurement effects (€679m)

The remaining lifetime is defined as the period between the balance-sheet date and the contractual maturity of the claim or liability. In the case of claims or liabilities which are paid in partial amounts, the remaining lifetime has been recognized for each partial amount. 172 NOTES

(73) Fair value of financial instruments

The table below compares the fair values of the balance- models involving current market parameters were used sheet items with their book values. Fair value is the in the absence of market prices. In particular, the net amount at which financial instruments may be sold or present-value method and option-price models were purchased at fair terms on the balance-sheet date. In- applied. Wherever claims on and liabilities to banks and sofar as market prices (e.g. for securities) were available, customers had a remaining lifetime of less than a year, we have used these for valuation purposes. For a large the fair value was considered for simplicity’s sake to be number of financial instruments, internal valuation that shown in the balance sheet.

Fair value Book value Difference € bn 31.12.2006 31.12.2005 31.12.2006 31.12.2005 31.12.2006 31.12.2005 Assets Cash reserve 6.0 8.6 6.0 8.6 – – Claims on banks 75.2 86.2 75.3 86.2 –0.1 0.0 Claims on customers 294.0 155.8 294.5 153.7 –0.5 2.1 Hedging instruments 7.0 4.7 7.0 4.7 – – Assets held for trading purposes 85.5 100.3 85.5 100.3 – – Investments and securities portfolio 135.3 86.2 135.3 86.2 – – Liabilities Liabilities to banks 125.7 129.9 125.8 129.9 –0.1 0.0 Liabilities to customers 140.9 102.9 141.2 102.8 –0.3 0.1 Securitized liabilities 228.8 97.5 228.8 96.9 0.0 0.6 Hedging instruments 14.1 9.8 14.1 9.8 – – Liabilities from trading activities 59.2 75.0 59.2 75.0 – – Subordinated and hybrid capital 14.8 8.1 14.8 8.1 0.0 0.0

In net terms, the difference between the book value and fair value amounted for all items to €–0.2bn as of December 31, 2006 (previous year: €1.4bn). NOTES 173

(74) Information on financial assets and financial liabilities in fair value option category

In the Commerzbank Group, the fair value option is prima- the amount of the change to the fair value of the claims rily used to avoid accounting mismatches arising from brought about as a result of changes in default risk was securities and loans hedged with interest-rate or credit €5m (previous year: €0m) and cumulatively amounts to derivatives. It is also used for financial instruments that €5m (previous year: €0m); the change in the fair value are managed and the performance of which is measured of credit derivatives during the financial year amounted on a fair value basis and for financial instruments with to –€4m (previous year: €0m), cumulative –€4m (previous embedded derivatives. year: €0m). As at December 31, 2006, the fair value of the financial For liabilities allocated to the fair value option, the assets assigned to the fair value option category was change in fair value for credit-risk reasons was €11m for €1,668m (previous year: €1,258m) and that of the financial the 2006 financial year (previous year: –€8m). The cumula- liabilities €447m (previous year: €294m) with a repayment tive amount was €3 m (previous year: –€8m). amount of €439m (previous year: €289m). All told, the The credit risk-specific changes in the fair value of the result of the measurement amounts to €53m (previous claims and liabilities are essentially calculated as changes year: €21m) (see note 32). to the fair values less the value changes resulting from For claims allocated to the fair value option, the total market conditions. volume as of December 31, 2006 was €795m (previous year: €155m), of which €247m (previous year: €95m) was hedged by credit derivatives. In the 2006 financial year, 174 NOTES

risk management

(75) Risk management

The Commerzbank Group’s value-based overall bank ensures that the strategic orientation of the Group is in management involves taking on risks in a targeted man- line with its risk management policy. ner and managing them professionally. The core func- At Board level the Chief Risk Officer (CRO) is respon- tions of Commerzbank risk management are therefore to sible for controlling all of the quantifiable risks (especially identify all key risks for the Group, measure these risks credit, market, liquidity and operational risk) of the as accurately as possible and manage the risk positions Commerzbank Group, and for establishing and implement- based on these results. ing the overall risk strategy. As part of his responsibility at Commerzbank defines risk as the danger of possible Group level for the operative credit function, the CRO also losses or profits foregone, which may be caused by inter- assumes the management function for all credit risks. nal or external factors. A basic distinction is made in risk The Chairman of the Board of Managing Directors management between quantifiable, or measurable, and (CEO) bears responsibility for risks related to the Bank’s unquantifiable types of risk. business strategy and reputational risks. The Chief Finan- The Bank’s Board of Managing Directors sets risk- cial Officer (CFO) assumes responsibility for compliance policy guidelines for the Group as part of the annually risk (investor protection, insider guidelines, money laun- reviewed overall risk strategy it has established, consist- dering, etc.). ing of various sub-strategies for the key types of risk. The The Board of Managing Directors and the Supervisory overall risk strategy is based on the business strategy, Board are informed promptly about the Bank’s risk situa- also defined by the Board of Managing Directors, which tion by means of comprehensive, objective reports.

(76) Group risk strategy

The Group risk strategy, which has to be reviewed annually, Value-at-risk (VaR) determines how the Group deals with all quantifiable and Unlike loan defaults and losses arising from operational unquantifiable risks, codified in detail in the sub-risk stra- risks, changes in market prices and business risks can tegies. affect the Bank both positively and negatively. There is The unquantifiable risks are subjected to strict qualita- therefore no expected loss. Instead, the risk is that negative monitoring in line with Pillar II of the Basel Accord and tive price changes have a certain probability of occurring, the MaRisk minimum requirements. thus resulting in losses. We restrict this risk by setting VaR The individual quantitative risks are managed by speci- limits in order to avoid holding positions that may lead fying target values or defining limits. The central manage- to losses equal to or greater than the VaR with a certain ment variables for Commerzbank Group are: probability (confidence level).

Expected Loss (EL) Economic capital This is determined for counterparty and operational risks Economic capital is made up of counterparty risk, market and is based on the risk parameters standard under risk (including investment and real-estate risk), opera- Basel II: the probability of default by the counterparty tional risks and business risk. This is calculated for all (PD), the collateral held (LGD – loss given default) and types of risk at a uniform confidence level of 99.95% the likely amount of the claim at the time of default (EaD – (which corresponds to the Commerzbank target rating of exposure at default). The expected loss corresponds to A+) and a holding period of one year. It takes into account the average loss expected from portfolio defaults within a correlations and diversification effects both within and year, and is hence reflected in the risk provisioning across between the types of risk. the economic cycle. NOTES 175

(77) Risk-taking capability, expected and unexpected loss

Risk-taking capability Expected loss by type of risk and corporate division Calculation of risk-taking capability is the second impor- The expected loss (EL) for business at risk of default is tant pillar of overall Bank management, in addition to inte- based on the exposure-at-default (EaD) including, in addi- grated risk/return-oriented management based on eco- tion to the claims still to be repaid, credit lines expected to nomic capital. be drawn, further on the rating of the borrower or the loan The aggregated risk figure for the Group (measured as and their defined probability of default and on the valua- economic capital) is expressed as a percentage of the total tion of collateral and the realization proceeds that can be capital available for covering risk. The objective of this realized (loss-given-default (LGD). The expected loss is comparison is to establish whether the Bank is in a position the product of EaD, PD and LGD and quantifies the loss to anticipate potential unexpected losses without serious that can statistically be expected on the basis of the refer- negative effects on its business activity and to cover them ence date volume and the average loan defaults asso- from its own funds. ciated with them within a one-year period. The expected The available capital for risk coverage in the Group has loss is taken into account in the calculation as standard to be 20% greater than the economic capital without diver- risk costs and hence is reflected in risk provisioning. sification effects. This buffer has to be at least 30% of eco- The expected loss from operational risk is calculated nomic capital after taking into account diversification on the basis of the average statistical losses to be effects. Commerzbank also uses a range of different stress expected, taking into account the amount of those losses. tests that simulate the effect on the Bank of extreme eco- Unlike loan losses and losses arising from operational nomic and market scenarios. Two of these stress tests cor- risks, changes in market prices and business risks can in respond to confidence levels of AA+ and AAA under S&P principle have the same effect in both directions. An nomenclature. The 2007 risk strategy also stipulates that expected profit or loss cannot therefore automatically be the available capital for risk coverage has to offer an addi- assumed. The gains or losses produced by uncertain tional buffer of at least 10% for the AA+ level for these future changes in market prices (or changes in commis- stress scenarios and may not fall short of the stress test sion-earning business) are hence defined as entirely result for the AAA level. unexpected. The capital buffer has been translated into specific sub- targets for individual portfolios as part of the overall risk strategy. All predefined buffers were maintained at all times during the year under review. 176 NOTES

The following table shows the expected loss for the various types of risk, by corporate division of the Commerzbank Group. Eurohypo was included for the first time as of December 31, 2006.

Retail Banking Corporate and Commercial Real Others Group and Asset Investment Estate, Public Finance and Con- Management Banking and Treasury solidation € m 31.12.2006 31.12.2005 31.12.2006 31.12.2005 31.12.2006 31.12.2005 31.12.2006 31.12.2005 31.12.2006 31.12.2005 Credit risk 305 230 397 582 331 90 6 4 1,039 906 Market risk –––––––––– Opera- tional risk 18 18 28 28 4 1 – – 50 47 Business risk–––––––––– Total 323 248 425 610 335 91 6 4 1,089 953

Unexpected loss by type of risk and corporate division Unexpected loss (UL) is the loss that exceeds the ave- Risks are not just managed by expected loss but also by rage statistical expected loss. It can be calculated for every limits for unexpected loss. Unexpected loss is determined probability of occurrence (confidence level). Commerz- in our economic capital model by taking into account the bank calculates unexpected loss with a confidence level of individual loans and considering correlations between 99.95%. This is derived from the probability of default for borrowers, industries, countries and collateral as well as the Commerzbank target rating of A1 (Moody’s). It can be diversification effects. traced back, for example, to economic ups and downs, problems in particular industries or cluster risks.

The unexpected loss specified in the table takes into account diversification and correlation effects within each type of risk but not between the types of risk.

Retail Banking Corporate and Commercial Real Others Group and Asset Investment Estate, Public Finance and Con- Management Banking and Treasury solidation € m 31.12.2006 31.12.2005 31.12.2006 31.12.2005 31.12.2006 31.12.2005 31.12.2006 31.12.2005 31.12.2006 31.12.2005 Credit risk 983 1,074 2,350 3,129 2,038 515 37 16 5,408 4,734 Market risk 118 106 264 314 418 1,104 1,650 1,170 2,450 2,694 Opera- tional risk 327 303 597 638 120 55 – – 1,044 996 Business risk 201 141 179 198 107 26 151 117 638 482 Total 1,629 1,624 3,390 4,279 2,683 1,700 1,838 1,303 9,540 8,906 NOTES 177

(78) Default risks

The Commerzbank rating and scoring methods, in use for Rating distribution all key credit portfolios, form the basis for measuring The Commerzbank rating method comprises 25 rating default risks. Both the calibration of the probabilities of levels for loans not in default (1.0 to 5.8) and five default default assigned to the individual counterparties or loans classes (6.1 to 6.5). The CB master scale assigns each and the evaluation of collateral are based on analysis of rating category exactly one range of probabilities of historical data from the Commerzbank portfolio. The basis default, which is stable over time and free of overlap. The for the annual recalibration of the methods is the experi- percentages of the groups in each rating category were ence of the current year. calculated with respect to exposure at default (EaD).

The rating methods are subject to an annual validation and recalibration so that they reflect the latest projection bearing in mind all actual observed defaults.

Commerz- PD and EL PD and EL bank AG mid-point range S&P IFD scale* rating as percentage as percentage 1.0 0 0 AAA AAA 1.2 0.01 0 - 0.02 Investment 1.4 0.02 0.02 - 0.03 AA+ AA grade 1.6 0.04 0.03 - 0.05 AA, AA- I 1.8 0.07 0.05 - 0.08 A+, A, A 2.0 0.11 0.08 - 0.13 A- 2.2 0.17 0.13 - 0.21 BBB+ 2.4 0.26 0.21 - 0.31 BBB BBB 2.6 0.39 0.31 - 0.47 II 2.8 0.57 0.47 - 0.68 BBB- 3.0 0.81 0.68 - 0.96 BB+ 3.2 1.14 0.96 - 1.34 III BB BB 3.4 1.56 1.34 - 1.81 3.6 2.10 1.81 - 2.40 BB- IV 3.8 2.74 2.40 - 3.10 4.0 3.50 3.10 - 3.90 B+ 4.2 4.35 3.90 - 4.86 Non-invest- 4.4 5.42 4.86 - 6.04 B B V ment grade 4.6 6.74 6.04 - 7.52 4.8 8.39 7.52 - 9.35 B- 5.0 10.43 9.35 - 11.64 5.2 12.98 11.64 - 14.48 5.4 16.15 14.48 - 18.01 CCC+ VI CCC 5.6 20.09 18.01 - 22.41 CCC to CC- 5.8 25.00 22.41 - 30.00 6.1 Imminent insolvency 6.2 Restructuring 6.3 Restructuring with recapitaliza- 100 C, D-I, D-II Default tion/partial waiving of claims 6.4 Cancellation without insolvency 6.5 Insolvency

* IFD = Initiative Finanzstandort Deutschland; Source: Commerzbank

Consistent with the master scale method, the default A direct reconciliation is not possible however, because ranges assigned to the ratings within the Commerzbank for external ratings the observed default rates fluctuate master scale remain unchanged for the purpose of from year to year and sometimes even between different comparability (stable over time and for the portfolio). portfolios. For better orientation, external ratings are shown as well. 178 NOTES

Private customers (Germany) Corporate customers (Germany) in % 31.12.2006 31.12.2005 31.12.2006 31.12.2005 R 1 38.9 28.9 33.2 1.0 R 2 32.3 35.4 40.2 28.6 R 3 14.1 16.6 16.9 40.1 R 4 4.5 5.5 2.4 17.8 R 5 0.9 1.0 0.3 3.6 R 6/6.5 7.7 8.5 6.2 0.7 No rating 1.6 4.1 0.8 8.2 Total 100.0 100.0 100.0 100.0

The credit powers of individual employees and commit- The credit risk strategy sets target values for individual tees (Board of Managing Directors, credit committee, sub- subportfolios. This ensures that the expected risk provi- credit committee) are graduated by rating group. The sion is kept in line with the strategic orientation of the most important control variables for the default risk Bank, for example as regards the target rating from rating are the expected losses (EL) derived from the ratings. agencies or the target portfolio quality and structure.

Expected and unexpected loss for guarantees, or letters of credit) using their statistically credit risks by segment determined credit conversion factors (CCFs). Collateral, All credit risks are aggregated at portfolio level with the guarantees and netting agreements are valued in accord- aid of the internal credit risk model. The core result is the ance with their statistical parameters and the resulting distribution of loss, which produces probability projec- unsecured portions weighted with their historical re- tions for the potential amount of loss in lending ope- covery factors to produce the loss given default (LGD) for rations. Both the expected loss (EL) and the unexpected the commitment. Industry correlations and diversification loss (UL) are derived from this. Many risk factors and are also taken into account. Under Basel II the capital ade- parameters closely linked to the parameters for Basel II quacy requirements are calibrated for each portfolio class are included in the credit risk model. depending on the EL, which is the product of the three The probability of default (PD) of borrowers is derived core parameters PD, EaD and LGD. from the rating systems. Estimates have to be made for The 2006 integration of Eurohypo resulted in changes the expected exposure at default (EaD) by aggregating the to the Group divisions and segments. The figures for 2005 various credit types (for example unutilized credit lines, have been adjusted to the current structure.

Expected Loss Unexpected Loss € m 31.12.2006 31.12.2005 31.12.2006 31.12.2005 Retail Banking and Asset Management 305 230 983 1,074 Private customers 294 221 914 1,015 Asset Management 11 9 69 59 Corporate and Investment Banking 397 582 2,351 3,129 Mittelstand 289 342 1,474 1,628 Corporates & Markets 108 240 877 1,501 Commercial Real Estate, Public Finance and Treasury 331 90 2,037 515 Commercial Real Estate 277 24 1,677 96 Public Finance and Treasury 54 66 360 419 Others and Consolidation 6 43716 Group 1,039 906 5,408 4,734 NOTES 179

(79) Market risk

Market price risks cover the risk of losses as a result of holding period and a confidence level of 99%. The value- changes in market prices (interest rates, spreads, cur- at-risk models are constantly being adapted to the chang- rency rates and equity prices) or parameters which influ- ing environment. ence prices such as volatilities and correlations. In the The overall market risk is calculated on the basis of a Commerzbank definition, risks from equity investments in historical simulation while the specific interest-rate risk the banking book and equity event risk (modelling equity (specific market risk) is calculated by means of the vari- risk beyond VaR, such as the insolvency of the issuer) also ance-covariance method. At the parent bank, its foreign represent market risks. We also consider market liquidity branches and the Luxembourg subsidiary Commerzbank risk which covers situations where the Bank is prevented International S.A., Luxembourg, we use an internal model from selling trading positions at short notice or hedging to calculate the underlying capital requirements for the them to the desired extent due to inadequate market general and specific market risk. liquidity. The reliability of the internal model is checked on a Market risk is managed by means of a sophisticated regular basis by carrying out backtesting. The aim is to system of limits, combined with reliable and optimized meet supervisory requirements and to assess and steadily methods for measuring and monitoring. improve forecasting quality. The total number of signifi- Commerzbank uses economic capital (risk-taking cant deviations provides the basis for the evaluation of capability) and business expectations to establish its mar- the internal risk model by the supervisory authorities. ket-risk limits which ensures a risk/return-based manage- During the course of the year the suitability of the ment of market risk. The extent to which the limits are Commerzbank internal market risk model was validated used, together with the relevant P&L figures, is reported as part of an audit by the regulatory authorities and the daily to the Board of Managing Directors and the various factor for capital backing of market risks lowered con- heads of the business segments. siderably, to 3.3. For the daily quantification and monitoring of market The table below shows the market risk of the Group’s risk, especially that arising in proprietary trading, sta- trading portfolio, broken down by the segments where tistical methods are used to calculate the value-at-risk. proprietary trading is conducted. The value-at-risk shows The underlying statistical parameters are based on an the potential losses which will not be exceeded with a 99% observation period of the past 255 trading days, a 10-day degree of probability for a holding period of 10 days:

Corporates & Markets Treasury Group € m 31.12.2006 31.12.2005 31.12.2006 31.12.2005 31.12.2006 31.12.2005 Minimum 38.6 58.6 25.8 44.1 44.3 82.1 Median 27.2 27.5 12.3 17.8 31.3 36.4 Maximum 15.2 17.3 9.4 8.5 21.0 25.2 Year-end figure 22.6 26.1 12.2 22.1 30.0 39.2

Because the value-at-risk concept forecasts potential scenarios. Stress tests are intended to simulate the impact losses under ”normal” market conditions, Commerzbank of crises, extreme market conditions and major changes also calculates stress tests to cover possible extreme in correlations and volatilities. 180 NOTES

Stress tests per division, individually adjusted to the The impact of an interest-rate shock on the economic risk factors of each portfolio, form part of daily reporting. value of the Group’s banking book is simulated every Stress tests performed across portfolios simulate the month.The maximum decline due to a parallel shift of impact of historical and conceivable future crisis scenarios 200 basis points in the yield curve was €310m at year-end. on the Group as a whole. The overall picture is rounded off This equates to a decline in equity of 1.32%, which is well by monthly specific scenario analyses for each investment below the limit of 20% set by Basel II for so-called outlier category (e.g. hypothetical interest-rate, equity, foreign- banks. exchange and credit-spread scenarios).

(80) Operational risk

The risk of losses caused by inadequate or defective sys- The operational risk profile of the Group expressed in tems and processes, human or technical failures or exter- terms of the expected loss per event category under Art. nal events (such as communication failures or fire damage) 287 of the German Solvency Regulation shows that around is what we refer to as operational risk. By analogy with the three quarters of the expected loss falls into the two event definition of the Basel Committee it also includes legal risk, categories ”Execution, delivery and process manage- i.e. risks stemming from inadequate contractual agreement” and ”Customers, products and business practices”, ments or changes in the legal framework. and hence reflects the two key concepts of the ”defective Information about the risk situation is provided to the systems and processes” operational risk definition. ZMO Operational Risk Committee on a regular basis. In addition, conducts regular benchmarking of values to data from the the Global OpRisk Forum helps Risk Control and the opera- Operational Risk data eXchange ORX and public data; tional risk managers in the businesses lay the groundwork these show comparable distributions. ORX, a consortium for decisions and discuss ongoing developments, projects now made up of 30 international banks and of which and events; it also serves the general exchange of views at Commerzbank was a founding member, is planning to pub- working level. lish benchmark reports in 2007.

Expected Loss 2006 2005 in € m in % in € m in % Internal fraud 860 1.7 767 1.6 External fraud 8,941 18.0 8,174 17.4 Employment practice and job security 1,436 2.9 1,060 2.3 Customers, products and business practices 10,870 21.8 9,784 20.8 Physical damage 327 0.7 299 0.6 Business interruption and system failures 2,491 5.0 2,557 5.4 Execution, delivery and process management 24,875 49.9 24,416 51.9 Group 49,800 100.0 47,057 100.0 NOTES 181

(81) Interest-rate risk

The interest-rate risk of the Commerzbank Group results shown in the balance sheet as well as the derivatives from items in both the trading book and the banking book. employed to steer them are included in the measurement In the latter, interest-rate risk mainly arises through of interest-rate risk. maturity mismatches between the Bank’s interest-bearing The interest-rate risk of the banking book is measured assets and liabilities – for instance, through the short- on the basis of a net present value approach, applying the term funding of long-dated loans. The interest-rate items historical simulation method:

31.12.2006 Holding period Banking book Trading book Overall interest- Portfolio Confidence level: 99% rate risk € m € m € m Group (excl. Eurohypo) 10 days 75.6 16.2 77.1 Eurohypo 10 days 5.8 0.0 5.8 Group 10 days 81.4 16.2 82.9

31.12.2005 Holding period Banking book Trading book Overall interest- Portfolio Confidence level: 99% rate risk € m € m € m Group 10 days 103.8 30.2 101.2

(82) Concentration of credit risk

Concentrations of credit risk may arise through business through the furnishing of the appropriate security and relations with individual borrowers or groups of bor- through the application of a uniform lending policy. In rowers who share a number of features and whose in- order to minimize credit risk, the Bank has entered into a dividual ability to service debt is influenced to the same number of master netting agreements ensuring the right extent by changes in certain overall economic con- to set off the claims on and liabilities to a client in the ditions. These risks are managed by the Global Credit case of default by the latter or insolvency. In addition, the Risk Management Corporates & Markets department. management regularly monitors individual portfolios. Credit risk throughout the Group is monitored by the use The Group’s lending does not reveal any special depen- of limits for each individual borrower and borrower unit, dence on individual sectors. 182 NOTES

In terms of book values, the credit risks relating to financial instruments in the balance sheet were as follows on December 31, 2006:

Claims € m 31.12.2006 31.12.2005 Customers in Germany 205,929 112,607 Companies and self-employed 70,244 43,906 Manufacturing 11,553 9,593 Construction 1,263 785 Distributive trades 5,511 4,849 Services incl. professions and others 51,917 28,679 Public sector 61,697 29,744 Other retail customers 73,988 38,957 Customers abroad 88,542 41,067 Corporate and private customers 75,194 37,332 Public sector 13,348 3,735 Sub-total 294,471 153,674 less valuation allowances –7,356 –5,161 Total 287,115 148,513

(83) Liquidity ratio of Commerzbank Aktiengesellschaft (Principle II)

Pursuant to Art. 11, KWG, banks are obliged to invest broken down by remaining lifetime. Every day, the ratio their funds such that adequate liquidity for payment between the funds in the first maturity bracket (remain- purposes is guaranteed at all times. They have to ing life of up to one month) and the payment obligations demonstrate that they have adequate liquidity in the which may fall due during this period has to reach a form of a liquidity analysis (Principle II). Liquidity- value of one. If the ratio registers this value, liquidity is weighted assets (claims, securities, etc.), structured to considered to be adequate. As of December 31, 2006, the reflect their respective maturity brackets, are set off liquidity ratio worked out by Commerzbank Aktiengesell- against certain liquidity-weighted balance-sheet and off- schaft was 1.19 (previous year: 1.13). Excess liquidity balance-sheet liabilities (debt, lending commitments), reached €21.0bn (previous year: €17.2bn).

Liquidity ratios of Commerzbank Aktiengesellschaft in 2006:

Month-end level Month-end level January 1.19 July 1.14 February 1.19 August 1.11 March 1.14 September 1.16 April 1.15 October 1.13 May 1.17 November 1.15 June 1.10 December 1.19 NOTES 183

Other notes

(84) Subordinated assets

The following subordinated assets are included in the assets shown in the balance sheet:

31.12.2006 31.12.2005 Change € m € m in % Claims on banks 113 8 · Claims on customers 145 127 14.2 Bonds and notes 302 230 31.3 Other variable-yield securities 77 245 –68.6 Total 637 610 4.4 including: banks in which an equity investment exists – 222 ·

Assets are considered to be subordinated if the claims they represent may not be met before those of other creditors in the case of the liquidation or insolvency of the issuer.

(85) Contingent liabilities and irrevocable lending commitments

31.12.2006 31.12.20051) Change € m € m in % Contingent liabilities 29,453 27,521 7.0 from rediscounted bills of exchange credited to borrowers41· from guarantees and indemnity agreements 29,110 27,468 6.0 Credit guarantees 3,214 3,483 –7.7 Other guarantees 19,604 15,081 30.0 Letters of credit 5,847 7,151 –18.2 Other warranties 445 1,753 –74.6 Other commitments 339 52 · Irrevocable lending commitments 49,080 36,583 34.2 Book credits to banks 1,263 2,073 –39.1 Book credits to customers 46,265 33,281 39.0 Credits by way of guarantee 762 567 34.4 Letters of credit 790 662 19.3

In this table, provision for risks arising from these liabilities has been deducted from the respective items.

1) After adjustment due to change in the provision for possible loan losses. 184 NOTES

(86) Volume of managed funds

By type of managed fund, the assets which we manage break down as follows:

31.12.2006 31.12.2005 Number Fund Number Fund of funds assets of funds assets € bn € bn Retail investment funds 406 59.7 438 53.7 Equity-based and balanced funds 221 36.6 240 28.5 Bond-based funds 102 8.0 109 9.9 Money-market funds 19 9.4 21 11.0 Other*) 64 5.7 68 4.3 Special funds 1,604 30.4 1,480 28.5 Property-based funds 7 9.5 4 9.9 Total 2,017 99.6 1,922 92.1

*) includes fund-of-funds and retirement funds

The regional breakdown of the funds launched is shown in the following chart:

31.12.2006 31.12.2005 Number Fund Number Fund of funds assets of funds assets € bn € bn Germany 353 43.6 371 43.7 United Kingdom 1,192 24.5 1,116 18.3 Other European countries 299 28.2 300 26.6 America 10 0.6 10 0.7 Other countries 163 2.7 125 2.8 Total 2,017 99.6 1,922 92.1 NOTES 185

(87) Genuine repurchase agreements (repo and reverse repo transactions) and cash collaterals

Under its genuine repurchase agreements, the Commerz- In securities-lending transactions, the counterparty bank Group sells or purchases securities with the obli- may provide collateral in the form of, for example, gation to repurchase or return them. The money equiva- liquidity, so the Group avoids the credit risk. The provision lent deriving from repurchase agreements in which the of collateral for a lending transaction is known as Commerzbank Group is a borrower (has obligation to take ”cash collateral out” and the receipt of collateral as ”cash the securities back) is shown in the balance sheet as a collateral in”. liability to banks or customers.

The genuine repurchase agreements concluded up to the balance-sheet date and the cash collaterals break down as follows:

31.12.2006 31.12.2005 Change € m € m in % Genuine repurchase agreements as a borrower (repo agreements) Liabilities to banks 37,633 41,820 –10.0 Liabilities to customers 10,199 12,674 –19.5 Cash collateral in Liabilities to banks 2,870 7,598 –62.2 Liabilities to customers 584 2,165 –73.0 Total 51,286 64,257 –20.2 Genuine repurchase agreements as a lender (reverse repo agreements) Claims on banks 22,342 42,329 –47.2 Claims on customers 8,157 8,377 –2.6 Cash collateral out Claims to banks 10,602 13,239 –19.9 Claims to customers 1,810 3,820 –52.6 Total 42,911 67,765 –36.7

(88) Securities-lending transactions

Securities-lending transactions are conducted with other folio, whereas borrowed securities do not appear in the banks and customers in order to cover our need to meet balance sheet. The expenses and income from securi- delivery commitments or to enable us to effect securities ties-lending transactions, insofar as they relate to the repurchase agreements in the money market. We show past financial year, were recognized under interest paid lent securities in our balance sheet under our trading or received in the income statement and reflect the portfolio or under the investments and securities port- respective maturities.

31.12.2006 31.12.2005 Change € m € m in % Lent securities 2,755 7,173 –61.6 Borrowed securities 4,967 7,789 –36.2 186 NOTES

(89) Trust transactions at third-party risk

Trust transactions which do not have to be shown in the balance sheet amounted to the following on the balance- sheet date:

31.12.2006 31.12.2005 Change € m € m in % Claims on banks 1 8 –87.5 Claims on customers 374 330 13.3 Other assets 642 608 5.6 Assets on a trust basis at third-party risk 1,017 946 7.5 Liabilities to banks 279 319 –12.5 Liabilities to customers 738 627 17.7 Liabilities on a trust basis at third-party risk 1,017 946 7.5

(90) Risk-weighted assets and capital ratios as defined by the Basel capital accord (BIS)

Like other internationally active banks, the Commerzbank Core capital mainly consists of subscribed capital plus Group has committed itself to meeting the capital ade- reserves and hybrid capital and minority interests, less quacy requirements contained in the currently valid ver- goodwill. Supplementary capital comprises outstanding sion of the Basel accord. This imposes on banks a mini- profit-sharing certificates and subordinated long-term lia- mum requirement of 8% of own funds to risk-weighted bilities. Tier III capital consists of short-term subordinated assets (own funds ratio). A minimum requirement of 4% liabilities. applies universally for the ratio between core capital and The structure of the Commerzbank Group’s capital in risk-weighted assets (core capital ratio). accordance with the Basel capital accord yields the fol- Own funds are defined as liable capital that is made up lowing picture: of core and supplementary capital, plus Tier III capital.

31.12.2006 31.12.20051) Change € m € m in % Core capital (Tier I) Subscribed capital 1,705 1,705 0.0 Reserves, minority interests, treasury shares 10,867 10,324 5.3 Hybrid capital 2,925 – · Other – – · Total 15,497 12,029 28.8 Supplementary capital (Tier II) Hybrid capital 464 – · Profit-sharing rights 1,593 1,870 –14.8 Reserves in securities (amount reported: 45%) 820 1,003 –18.2 Subordinated liabilities 6,802 3,574 90.3 Other 545 273 99.6 Total 10,224 6,720 52.1 Tier III capital 77 – · Eligible own funds according to BIS 25,798 18,749 37.6

1) After adjustment due to change in the provision for possible loan losses. NOTES 187

as of 31.12.2006 Capital charges in % Total € m 100 50 25 20 10 4 Balance-sheet business 154,690 19,031 – 16,561 – – 190,282 Traditional off-balance- sheet business 4,294 25,570 133 742 444 71 31,254 Derivatives business in investment portfolio – 2,117 – 3,953 – – 6,070 Risk-weighted assets, total 158,984 46,718 133 21,256 444 71 227,606

Risk-weighted market-risk position multiplied by 12.5 3,875 Total items to be risk-weighted 231,481 Eligible own funds 25,798 Core capital ratio (excluding market-risk position) 6.8 Core capital ratio (including market-risk position) 6.7 Own funds ratio (including market-risk position) 11.1

as of 31.12.20051) Capital charges in % Total € m 100 50 25 20 10 4 Balance-sheet business 96,861 7,001 – 12,246 – – 116,108 Traditional off-balance- sheet business 4,224 17,844 189 623 349 74 23,303 Derivatives business in investment portfolio – 2,141 – 4,493 – – 6,634 Risk-weighted assets, total 101,085 26,986 189 17,362 349 74 146,045

Risk-weighted market-risk position multiplied by 12.5 3,638 Total items to be risk-weighted 149,683 Eligible own funds 18,749 Core capital ratio (excluding market-risk position) 8.2 Core capital ratio (including market-risk position) 8.0 Own funds ratio (including market-risk position) 12.5

1) After adjustment due to change in the provision for possible loan losses. 188 NOTES

Reconciliation of reported capital with eligible equity in accordance with BIS

31.12.2006 Core capital/ Supplementary/ Tier III Total Equity subordinated capital capital (excl. IAS effects and € m deferred interest) Reported in balance sheet 15,311 10,856 26,167 Revaluation reserve –1,746 –1,746 Valuation of cash flow hedges 381 381 Consolidated profit –493 –493 Minority interests not to be shown in core capital (incl. revaluation reserve, valuation of cash flow hedges) and changes in consolidated companies and goodwill –867 –867 Hybrid capital non-innovative 600 600 Hybrid capital innovative 2,325 464 2,789 Parts of subordinated capital not eligible due to limited remaining lifetime –2,374 –2,374 Reallocation to Tier III capital –78 78 – Latent revaluation reserves for securities 820 820 General provisions/reserves for defaults 822 822 Other differences –14 –286 –1 –301 Eligible equity 15,497 10,224 77 25,798

(91) Securitization of loans

The use of credit derivatives (such as credit default swaps, transfer of credit risks to investors a reduction in the regu- total return swaps and credit-linked notes) can reduce the latory equity capital requirements according to Principle 1 risk weighting of a loan portfolio, whereby the hedging and BIS is achieved) and 3. funding (use of securitizations effect of a credit derivative may relate both to individual as an alternative funding instrument to senior bearer loans or securities and to entire portfolios of loans or bonds). securities. As a rule, security is furnished by means of By the end of the 2006 financial year, the Commerz- a synthetic securitization by credit default swap (CDS) bank Group (Commerzbank Aktiengesellschaft and four and/or by credit-linked notes (CLN). We can hereby subsidiaries) had launched 14 securitization programmes achieve three important goals: 1. risk diversification as the buyer of protection. The securitization-transaction (reduction of credit risks in the portfolio, especially bulk Eurohypo 2001-1 was called in on September 25, 2006. risks), 2. easing the burden on equity capital (through the NOTES 189

The range of legal maturity dates stretches from two to 76 years. All told, credits to customers of €17.4bn had been covered by end-December 2006. This eased the burden on the Bank’s risk-weighted assets by €12.2bn.

Name of Buyer of Year Duration Type of claim Volume Reduction transaction protection trans- of trans- of of risk- acted action in credit weighted years assets € m€ m Residence 2000-1 Commerzbank AG 2000 32 Private home loans 498 294 (CLN) Residence 2000-1 Commerzbank AG 2000 32 Private home loans 616 245 (CDS) Residence 2001-1 Commerzbank AG 2001 30 Private home loans 889 334 Promise-C 2002-1 Commerzbank AG 2002 8 Corporate loans 969 740 Residence 2002-1 Commerzbank AG 2002 33 Private home loans 920 889 Residence 2002-2 Commerzbank AG 2002 33 Private home loans 903 533 Residence 2003-1 Commerzbank AG 2003 33 Private home loans 980 590 CoCo Finance 2006-1 PLC Commerzbank AG, 2006 10 national and international 4,500 4,399 Commerzbank larger corporates International S.A., Commerzbank (Eurasija) SAO Europa One Limited Eurohypo AG 2000 37 commercial 536 499 real-estate portfolio Eurohypo 2000-1 Eurohypo AG 2000 40 residential 189 167 real-estate portfolio Europa Two Limited Eurohypo AG 2001 26 commercial 200 192 real-estate portfolio Provide GEMS 2002-1 PLC Eurohypo AG 2002 45 residential 662 639 real-estate portfolio Europa Three Limited Eurohypo AG 2003 45 commercial 1,040 880 real-estate portfolio Semper Finance 2006-1 Eurohypo AG 2006 76 Project Castle – commercial 1,851 946 real-estate portfolio STAR 2006-1 Hypothekenbank 2006 2 Private home loans 2,660 865 in Essen AG 17,413 12,212 190 NOTES

(92) Average number of staff employed by the Bank during the year

2006 2005 Total male female total male female Group 34,530 18,468 16,062 31,542 16,979 14,563 in Germany 25,926 12,832 13,094 24,014 11,935 12,079 abroad 8,604 5,636 2,968 7,528 5,044 2,484

The above figures include both full-time and part-time personnel. Not included in the figures is the average number of employees undergoing training within the Group. The average time worked by part-time staff is 60% (previous year: 60%) of the standard working time.

Total male female 2006 2005 2006 2005 2006 2005 Trainees 1,278 1,173 512 467 766 706

(93) Remuneration and loans to board members

A detailed description of the principles of the remuneration system for the members of the Board of Managing Directors and members of the Supervisory Board is provided in the remuneration report. This forms part of the management report and appears on pages 17 to 25 of the annual report for the year ending December 31, 2006.

The total remuneration for the members of the Board of Managing Directors and the Supervisory Board under German commercial law and accounting provisions as at the respective year-ends is as follows:

31.12.2006 31.12.2005 €1,000 €1,000 Board of Managing Directors 23,612 15,851 Supervisory Board 1,977 1,616

The total remuneration for the Board of Managing Direc- Where relevant, the stated overall remuneration of the tors includes remuneration in kind granted within the individual members of the Board of Managing Directors standard scope (essentially remuneration in kind from includes fees paid for the financial year for serving on the vehicle use and insurance, taxes and social security con- boards of consolidated subsidiaries in the amount of €543 tributions related to remuneration in kind) which for tax thousand (previous year: €483 thousand). purposes has to be treated as benefits in money’s worth. NOTES 191

The following table shows the remuneration in the form of Directors. The variable remuneration is shown subject to basic salary, variable remuneration, pay-outs from long- the annual financial statements of Commerzbank Aktien- term performance plans (LTPs) and other remuneration gesellschaft for the 2006 financial year being approved in of the individual members of the Board of Managing their present form.

Cash remuneration Other3) Total Amounts Basic salary Variable Payment for the in €1,000 remuneration2) LTPs 2002 and 2003 Klaus-Peter Müller 2006 760 2,736 900 80 4,476 2005 760 2,280 0 86 3,126 Martin Blessing 2006 480 1,695 450 77 2,702 2005 480 1,500 0 69 2,049 Wolfgang Hartmann 2006 480 1,350 450 109 2,389 2005 480 1,500 0 134 2,114 Dr. Achim Kassow 2006 480 1,600 – 44 2,124 2005 480 1,500 – 123 2,103 Bernd Knobloch1) 2006 360 1,125 – 35 1,520 2005 –– ––– Klaus M. Patig 2006 480 1,500 0 65 2,045 2005 480 1,500 0 60 2,040 Michael Reuther1) 2006 120 375 – 2,885 3,380 2005 –– ––– Dr. Eric Strutz 2006 480 1,650 196 42 2,368 2005 480 1,500 0 42 2,022 Nicholas Teller 2006 480 1,800 250 78 2,608 2005 480 1,500 0 58 2,038 Total 2006 4,120 13,831 2,246 3,415 23,612 20054) 3,640 11,280 0 572 15,492

1) Pro rata for the period since being appointed. 2) 2006 payable in 2007; less remuneration already received for performing board functions at consolidated companies (€543,000; previous year: €483,000). 3) ”Other” includes payment in kind in the year under review (€546,000) and, for Mr. Reuther, an amount of €2,869,000 paid to him as special remuneration for payments he had to forego from his previous employer arising from restricted equity units and bonuses when he joined the Board. 4) The totals for 2005 do not include amounts for the member of the Board of Managing Directors Andreas de Maizière who left the Board in 2005 (pro rata fixed pay of €280,000 and payments in kind of €79,000).

The active members of the Board of Managing Directors bers of the Board of Managing Directors on the basis of had and have participated in the 2002-2006 long-term per- their individual decisions have invested in up to 2,500 formance plans (LTPs) which are described in detail in shares of Commerzbank Aktiengesellschaft and the Note 28 and represent a share-based form of remunera- Chairman in up to 5,000 shares of Commerzbank Aktien- tion. In order to take part in the various plans, the mem- gesellschaft per plan at current market prices. 192 NOTES

The following table shows the number of shares (corre- 2004 to 2006 amounting to €2.0m have been formed for sponding to a ”virtual” option per share) per individual possible future payment liabilities to members of the active member of the Board and per respective current Board on the basis of the fair values as of December 31, LTP, as well as the fair values at the time the share-based 2006. The allocation affecting profit and loss was €1.4m payment was granted and the fair values as of the valua- for all plans in the financial year. tion date, December 31, 2006. Provisions for the LTPs

Long-term performance plans

2004 2005 Number of Attributable fair value in € Number of Attributable fair value in € participating when pro-rated on participating when pro-rated on shares the shares 31.12.2006 shares the shares 31.12.2006 were granted were granted Klaus-Peter Müller 5,000 120,900.00 419,500.00 5,000 137,300.00 186,200.00 Martin Blessing 2,500 60,450.00 209,750.00 2,500 68,650.00 93,100.00 Wolfgang Hartmann 2,500 60,450.00 209,750.00 2,500 68,650.00 93,100.00 Dr. Achim Kassow – – – 2,500 68,650.00 93,100.00 Bernd Knobloch – – – – – – Dr. Eric Strutz 2,500 60,450.00 209,750.00 2,500 68,650.00 93,100.00 Nicholas Teller 2,500 60,450.00 209,750.00 2,500 68,650.00 93,100.00

2006 Number of Attributable fair value in € participating when pro-rated on shares the shares 31.12.2006 were granted Klaus-Peter Müller 5,000 174,550.00 24,550.00 Martin Blessing 2,500 87,275.00 12,275.00 Wolfgang Hartmann 2,500 87,275.00 12,275.00 Dr. Achim Kassow 2,500 87,275.00 12,275.00 Bernd Knobloch 2,500 87,275.00 12,275.00 Dr. Eric Strutz 2,500 87,275.00 12,275.00 Nicholas Teller 2,500 87,275.00 12,275.00

The potential remuneration stemming from participation This pay-out was made in June 2006 in cash. These in the LTPs 2004 to 2006 could deviate considerably from plans ended with a payment of €80.00 per share con- the figures shown in the table above or could even be tributed for the LTP 2002 and €100.00 per share con- completely eliminated, because the final pay-out amounts tributed for the LTP 2003. The table below lists the pay- are not fixed until the end of the term of each LTP. ments to members of the Board of Managing Directors The second pay-out for the LTP 2002 and the first pay- (€2,246 thousand in total) who participated in these plans out for the LTP 2003, which were based on the values of regardless of their current board positions. The payments the first quarter of 2006, resulted in a payment obligation are contained in the total remuneration amount above. for the amounts achieved under the terms of the plans. NOTES 193

Long-term performance plans

2002 2003 Number of Amount in € Number of Amount in € participating participating shares shares Klaus-Peter Müller 5,000 400,000.00 5,000 500,000.00 Martin Blessing 2,500 200,000.00 2,500 250,000.00 Wolfgang Hartmann 2,500 200,000.00 2,500 250,000.00 Dr. Eric Strutz 1,200 96,000.00 1,000 100,000.00 Nicholas Teller – – 2,500 250,000.00

Payments to former members of the Board of Managing Remuneration for the members of the Supervisory Directors and their surviving dependents amounted to Board is regulated in Art. 15 of the Articles of Association €5,413 thousand in the 2006 financial year (previous year: of Commerzbank Aktiengesellschaft. The members of €7,756 thousand). our Supervisory Board will receive total remuneration For present and former members of the Board of Man- of €1,661 thousand for the 2006 financial year (previous aging Directors or their surviving dependents the Bank year: €1,393 thousand), provided that the AGM of has established a retirement benefit plan: assets to hedge Commerzbank Aktiengesellschaft resolves that a dividend this were transferred to Commerzbank Pensions-Trust e.V. of €0.75 be paid per no par-value share. The basic and as part of a contractual trust arrangement in the 2006 remuneration and remuneration for serving on commit- financial year. The subsequent remaining provisions for tees amounts to €1,426 thousand (previous year: €1,116 pension commitments (defined-benefit liabilities) as of thousand). Altogether a total of €235 thousand (previous December 31, 2006, amounted to €1.0m for active mem- year: €277 thousand) was paid in attendance fees for bers and €2.3m for former members of the Board of Man- participation in the meetings of the Supervisory Board aging Directors or their surviving dependents. and its four committees (Presiding, Audit, Risk and Social As of December 31, 2006, the defined-benefit obliga- Welfare Committees) which met in the year under review. tions for active board members totalled €28.6m and those VAT of €316 thousand (previous year: €223 thousand) for former members of the Board of Managing Directors to be paid on the overall remuneration of the members or their surviving dependents, €61.1m. of the Supervisory Board is refunded by Commerzbank We refer to the section headed Other Regulations in Aktiengesellschaft. the remuneration report for information on regulations All told, the Board of Managing Directors and Super- for payments stemming from termination of employ- visory Board held no more than 1% of the issued shares ment for the active members of the Board of Managing and option rights of Commerzbank Aktiengesellschaft on Directors. December 31, 2006. 194 NOTES

On the balance-sheet date, the aggregate amount of advances and loans granted, as well as contingent liabilities, was as follows:

31.12.2006 31.12.2005 €1,000 €1,000 Board of Managing Directors 3,251 3,591 Supervisory Board 1,505 1,601

Members of the Board of Managing Directors have been The loans and advances to members of the Super- granted cash advances and loans with lifetimes ranging visory Board – including those to employee representa- between until further notice and a due date of 2030 tives on this body – were granted with lifetimes ranging and at interest rates ranging between 3.0% and 12.0%. between until further notice and a due date of 2031 and Collateral security is provided on a normal market scale, at interest rates ranging between 4.7% and 6.7%. In line wherever necessary through mortgages and pledging with market conditions, some loans were granted without of security holdings. The overall figure (€3,251 thousand) collateral security, against mortgages or against the includes rental guarantees of €23 thousand, provided assignment of credit balances and life insurances. without a commission fee being charged; this is in line with the Bank’s general terms and conditions for members of staff.

(94) Share-based payments plans

For 2006, total expenses of €172m (previous year: €77m) Long-term performance plans were recognized for employee services received during In 2006 the expenses recognized for services performed by the year. The portion of these expenses arising from staff amounted to €35m (previous year: €15m). The addi- equity-settled plans is €1m (previous year: €4m), while for tional expenses are a consequence of the strong perform- cash-settled plans it is €171m (previous year: €73m). As of ance of Commerzbank shares. As of December 31, 2006 the December 31, the share-based payments reserve in equity provision which had been formed was €26m (previous amounted to €2m (previous year: €7m) and the provision year: €20m). That the provision increased only slightly that was formed €219m (previous year: €109m). compared to the expenses incurred can be attributed to The following provides more information on the long- their use for the pay-out of the LTPs 2002 and 2003. More term performance plans (LTPs) and staff remuneration details and conditions are explained in Note 28 of this plans/stock option programmes within the Jupiter Inter- annual report. In accordance with IFRS 2, all the plans are national Group plc (JIG). Further subsidiaries of the recognized as cash-settled. Commerzbank Group also offer their staff share-based remuneration plans. The overall expense for these plans was €19m (previous year: €6m) in 2006. Of this additional expense, €6m is due to the consolidation of Eurohypo. As of December 31, 2006, provisions of €37m (previous year: €8m) and a reserve in equity of €2m (previous year: €2m) were recognized. Eurohypo accounted for €19m of the provisions formed. NOTES 195

The estimated fair values as of December 31, 2006, are as follows:

Type Date of grant Fair value per award at grant date 31.12.2006 31.12.2005 in euros in euros LTP2002 April 1, 2002 n.a. 44.54 LTP2003 April 1, 2003 n.a. 99.35 LTP2004 April 1, 2004 92.47 76.10 LTP2005 April 1, 2005 67.59 62.36 LTP2006 April 1, 2006 21.76 –

Further details on the long-term performance plans outstanding during the year:

2006 2005 Number of awards Number of awards Outstanding at beginning of year 893,650 771,600 Granted during the year 330,350 222,350 Forfeited during the year 12,400 38,250 Exercised during the year 390,550 – Expired during the year 82,650 62,050 Outstanding at year-end 738,400 893,650

The remaining expected lives of the awards outstanding at year-end vary from 0.3 years to 2.6 years.

The fair values of the LTPs awards are calculated using the Monte Carlo model. The inputs into the model were as follows:

31.12.2006 31.12.2005 Volatility of the Commerzbank share price 13%-30% 23%-29% Volatility of the Euro Stoxx Banks Index 8%-15% 10%-12% Correlation of Commerzbank share price to index 39%-80% 57%-68% Commerzbank dividend yield 2.6%-3.2% 1.9%-2.4% Dividend yield of DJ Euro Stoxx Banks Index 2.4% 2.3% Risk-free interest rate 2.8%-3.9% 2.7%-2.8%

The volatility and correlation are based on the historical volatility of the Commerzbank share price and the Dow Jones (DJ) Euro Stoxx Banks Index and their correlation over the period up to the valuation date, taking into account the expected remaining life of the plans. A rate of 4.5% p.a. was assumed for staff turnover. 196 NOTES

Staff remuneration/share option plans of Jupiter International Group

As of January 1, 2006 there were three plans outstanding. increased only slightly compared to the incurred expenses In 2006, the expenses recognized for services performed can be attributed to their use for pay-out of C shares. The by staff amounted to €118m (previous year: €56m). The details and conditions of the Jupiter share option pro- considerable additional expenses are a consequence of grammes are explained in detail in Note 28 of this annual the very good performance of the Jupiter Group. As of report. In accordance with IFRS 2, all the plans are recog- December 31, 2006 the provision which had been formed nized as cash-settled. was €156m (previous year: €81m). That the provision

Details of the plans outstanding during the year:

2006 2005 Number of awards Weighted Number Weighted exercise price of awards exercise price C/D/E awards F shares in euros (C/D/E awards) (average) in euros (C/D/E awards) Outstanding at beginning of year 21,222,586 – 4.93 21,057,999 3.57 Granted during the year – 6,447,623 – 5,679,235 7.66 Forfeited during the year 377,703 – 5.73 940,264 5.14 Exercised during the year 5,302,629 – 2.50 4,574,384 2.02 Expired during the year 850,720 – 2.06 – – Outstanding at year-end 14,691,534 6,447,623 5.99 21,222,586 4.93 Exercisable at year-end 403,655 – 5.07 4,503,147 2.02

In 2006, all C rights were either exercised or expired as the was €16.02. The share values on the exercise date for exercise criteria were not met. The weighted average fair the C shares and D options exercised in 2006 were €10.26 value of the F shares issued over the course of the year (2005: €7.12) and €11.06 respectively.

The following table provides details on the awards outstanding at year-end, ranked by the respective exercise prices for the awards/options:

Exercise price in euros 5.07 7.56 n.a. Number of outstanding awards 9,282,299 5,409,235 6,447,623 Weighted average fair value in euros 13.93 12.03 16.02 Weighted average remaining contractual life 0.7 years 2.0 years 2.0 years NOTES 197

The fair values of the plans are calculated at each balance-sheet date, using an actuarial binominal model. The inputs into the model were as follows:

2006 2005 C share value (in euros) n.a. 10.30 D and E share value (in euros) 18.80 11.10 F share value (in euros) 18.80 – Expected volatility (in %) 31.0 33.0 Risk-free interest rate (in %) 5.1-5.3 4.2

As Jupiter is not a listed company, no historical volatility is available. Volatility has therefore been assumed on the basis of average historical volatility of comparable listed shares and for the expected remaining life of the options.

(95) Other commitments

Commitments towards companies both outside the Under Art. 5, (10) of the statutes of the German banks’ Group and not included in the consolidation for uncalled Deposit Insurance Fund, we have undertaken to indem- payments on shares in private limited-liability companies nify the Association of German Banks, Berlin, for any issued but not fully paid amount to €0.4m (previous year: losses incurred through support provided for banks in €2m). which Commerzbank holds a majority interest. The Bank is responsible for the payment of assess- Obligations towards futures and options exchanges ments of up to €173m to Liquiditäts-Konsortialbank (Liko) and also towards clearing centres, for which securities GmbH, Frankfurt am Main, the ”lifeboat” institution of the have been deposited as collateral, amount to €1,095m German banking industry. The individual banking asso- (previous year: €802m). ciations have also declared themselves responsible for Our subsidiaries Caisse Centrale de Réescompte S.A., the payment of assessments to Liko. To cover such assess- Paris, and cominvest Asset Management S.A., Luxem- ments, Group companies have pledged to Liko that they bourg, have provided performance guarantees for will meet any payment in favour of their respective asso- selected funds. ciations. 198 NOTES

(96) Lessor and lessee figures

Lessor figures – operating leasing –

Commerzbank is a lessor on operating leases. The leases include, in particular, real estate and vehicles rented out as of the balance-sheet date. The development of leasing assets is shown in note 54.

The following minimum leasing payments stemming from noncallable leases will accrue to the Commerzbank Group over the next few years from operating leases granted:

31.12.2006 Due date € m In under 1 year 55 In 1 to 5 years 115 In more than 5 years 119 Total 289

No conditional leasing installments have been agreed in the leasing agreements.

Lessor figures – finance leasing –

Commerzbank is a lessor on finance leases. The leases include, in particular, real estate and office furniture and equipment (e.g. vehicles, copying machines) rented as of the balance-sheet date.

31.12.2006 31.12.2005 € m € m Outstanding leasing payments 870 694 + guaranteed residual values 76 67 = minimum leasing payments 946 761 + non-guaranteed residual values 16 15 = gross investments 962 776 – unrealized financial income 112 100 = net investments 850 676 – net present value of non-guaranteed residual values 12 6 = net present value of minimum leasing payments 838 670

The minimum leasing payments include the total leasing the leasing agreement and reviewed as of the effective installments to be paid by the lessee from the leasing date on a regular basis. The unrealized financial income is agreement plus the guaranteed residual value. The non- equivalent to the interest implicit in the leasing agreement guaranteed residual value is estimated at the beginning of between the effective date and the end of the contract. NOTES 199

The gross total rental payments and net present values of the minimum leasing payments from noncallable finance leasing agreements are broken down as follows:

Remaining lifetimes as of 31.12. Gross investments Net present value of in € m minimum leasing payments 2006 2005 2006 2005 In under 1 year 359 267 308 234 In 1 to 5 years 562 468 494 400 In more than 5 years 41 41 36 36 Total 962 776 838 670

Lessee figures – operating leasing –

The Group’s existing obligations arising from operating leases involve rental and leasing agreements for buildings and office furniture and equipment and lead to expenses of €297m (previous year: €314m).

31.12.2006 Due date € m In under 1 year 247 In 1 to 5 years 201 In more than 5 years 168 Total 616

Subletting agreements have been signed for buildings no longer in use in the Commerzbank Group. Many leases are of noncallable duration. The following income will accrue to the Commerzbank Group in the next few years from these leases:

31.12.2006 Due date € m In under 1 year 20 In 1 to 5 years 70 In more than 5 years 55 Total 145

No conditional leasing installments have been agreed in the leasing agreements. 200 NOTES

(97) Letter of comfort

In respect of the subsidiaries listed below and included in the consolidated financial statements of our Bank, we ensure that, except in the case of political risks, they are able to meet their contractual liabilities.

Name Registered office AFÖG GmbH & Co. KG Frankfurt am Main BRE Bank Hipoteczny SA Warsaw BRE Bank SA Warsaw BRE Leasing Sp. z o.o. Warsaw Caisse Centrale de Réescompte, S.A. Paris CCR Actions Paris CCR Chevrillon-Philippe Paris CCR Gestion Paris comdirect bank Aktiengesellschaft Quickborn COMINVEST Asset Management GmbH Frankfurt am Main COMINVEST Asset Management Ltd. Dublin COMINVEST Asset Management S.A. Luxembourg Commerz (East Asia) Ltd. Hong Kong Commerz Asset Management Asia Pacific Pte Ltd. Singapore Commerz Equity Investments Ltd. London Commerz International Capital Management (Japan) Ltd. Tokyo Commerzbank (Eurasija) SAO Moscow Commerzbank (South East Asia) Ltd. Singapore Commerzbank (Switzerland) Ltd Zurich Commerzbank Asset Management Asia Ltd. Singapore Commerzbank Belgium S.A./N.V. Brussels Commerzbank Capital Markets Corporation New York Commerzbank Europe (Ireland) Dublin Commerzbank Europe Finance (Ireland) plc Dublin Commerzbank International S.A. Luxembourg Commerzbank Overseas Finance N.V. Curaçao Commerzbank Zrt. Budapest CommerzLeasing und Immobilien AG Düsseldorf Erste Europäische Pfandbrief- und Kommunalkreditbank Aktiengesellschaft in Luxemburg Luxembourg Eurohypo Aktiengesellschaft Eschborn European Bank for Fund Services GmbH (ebase) Haar near Munich Gracechurch TL Ltd. London Hypothekenbank in Essen AG Essen Intermarket Bank AG Vienna OLEANDRA Grundstücks-Vermietungsgesellschaft mbH&Co., Objekt Jupiter KG Düsseldorf OLEANDRA Grundstücks-Vermietungsgesellschaft mbH&Co., Objekt Luna KG Düsseldorf OLEANDRA Grundstücks-Vermietungsgesellschaft mbH&Co., Objekt Neptun KG Düsseldorf OLEANDRA Grundstücks-Vermietungsgesellschaft mbH&Co., Objekt Pluto KG Düsseldorf OLEANDRA Grundstücks-Vermietungsgesellschaft mbH&Co., Objekt Uranus KG Düsseldorf OLEANDRA Grundstücks-Vermietungsgesellschaft mbH&Co., Objekt Venus KG Düsseldorf P.T. Bank Finconesia Jakarta Stampen S.A. Brussels Transfinance a.s. Prague NOTES 201

(98) Corporate Governance Code

We have issued our declaration of compliance with the German Corporate Governance Code pursuant to Art. 161 of the German Stock Corporation Act (AktG) and made it available to shareholders on the internet (www.commerzbank.com).

Frankfurt am Main, March 6, 2007 The Board of Managing Directors 202

Boards of Commerzbank Aktiengesellschaft

Supervisory Board Board of Managing Directors

Dr. h.c. Martin Kohlhaussen Wolfgang Kirsch*) Klaus-Peter Müller Chairman Chairman Werner Malkhoff*) Uwe Tschäge*) Martin Blessing Deputy Chairman Prof. h.c. (CHN) Dr. rer. oec. Ulrich Middelmann Wolfgang Hartmann Hans-Hermann Altenschmidt*) (since April 1, 2006) Dr. Achim Kassow Dott. Sergio Balbinot Klaus Müller-Gebel Bernd Knobloch Herbert Bludau-Hoffmann*) Dr. Sabine Reiner*) (since April 1, 2006)

Astrid Evers*) Dr. Erhard Schipporeit Klaus M. Patig (until January 31, 2007) (until January 31, 2007) Uwe Foullong*) Dr.-Ing. Ekkehard D. Schulz Michael Reuther Daniel Hampel*) (until March 31, 2006) (since October 1, 2006)

Dr.-Ing. Otto Happel Prof. Dr. Jürgen F. Strube Dr. Eric Strutz

Dr. jur. Heiner Hasford Dr. Klaus Sturany Nicholas Teller

Sonja Kasischke*) Dr.-Ing. E.h. Heinrich Weiss

Honorary Chairman of the Supervisory Board Dr. Walter Seipp

*) elected by the Bank’s employees 203

Group Auditors' report

We have audited the consolidated financial state- entities included in consolidation, the determination ments prepared by Commerzbank Aktiengesellschaft, of the entities to be included in consolidation, the Frankfurt am Main, comprising the balance sheet, the accounting and consolidation principles used and sig- income statement, statement of changes in equity, nificant estimates made by the Company’s Board of cash flow statement and the notes to the consolidated Managing Directors, as well as evaluating the overall financial statements, together with the group manage- presentation of the consolidated financial statements ment report for the business year from January 1 to and the group management report. We believe that December 31, 2006. The preparation of the consoli- our audit provides a reasonable basis for our opinion. dated financial statements and the group manage- Our audit has not led to any reservations. ment report in accordance with the IFRSs, as adopted In our opinion based on the findings of our audit by the EU, and the additional requirements of German the consolidated financial statements comply with the commercial law pursuant to § (Article) 315a Abs. (para- IFRSs as adopted by the EU, the additional require- graph) 1 HGB (”Handelsgesetzbuch”: German Com- ments of German commercial law pursuant to § 315a mercial Code) are the responsibility of the Parent Abs. 1 HGB and give a true and fair view of the net Company’s Board of Managing Directors. Our respon- assets, financial position and results of operations sibility is to express an opinion on the consolidated of the Group in accordance with these requirements. financial statements and on the group management The group management report is consistent with the report based on our audit. consolidated financial statements and as a whole We conducted our audit of the consolidated finan- provides a suitable view of the Group’s position and cial statements in accordance with § 317 HGB and Ger- suitably presents the opportunities and risks of future man generally accepted standards for the audit of development. financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Ger- Frankfurt am Main, March 7, 2007 many) (IDW) and additionally observed the Inter- national Standards on Auditing (ISA). Those standards PricewaterhouseCoopers require that we plan and perform the audit such that Aktiengesellschaft misstatements materially affecting the presentation of Wirtschaftsprüfungsgesellschaft the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are Rausch Steinrück detected with reasonable assurance. Knowledge of (Wirtschaftsprüfer) (Wirtschaftsprüfer) the business activities and the economic and legal (German public auditor) (German public auditor) environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those

‡ new advertising campaign ‡

Lars-Hendrik Angerer Group Head of Customer Communications, Private and Business Customers.

”Putting across what we stand for and giving an incentive to become one of our customers – that’s what advertising has to do for us.”

Lars-Hendrik Angerer, who is responsible for customer communications in the Private and Business Customers department, implemented

the new advertising campaign for retail banking.

In our TV advertising, the core message – that the bank looks ahead and takes the initiative with its customers – is presented creatively.

At the heart of the campaign in 2006 were the Topzins investment product and the introduction of the free current account. The success of the campaign is reflected in the large number of new customers

attracted just to these products. The advertising campaign also has another aim: to give the Bank a much fresher image.

206

report of the supervisory board

During the past business year, we regularly advised the Board of Managing Directors in its conduct of the Bank’s affairs and supervised the way in which Commerzbank was managed. The Board of Managing Directors reported to us regularly, promptly and extensively, in both written and verbal form, on all the main developments at Martin Kohlhaussen the Bank. We received regular information on the company’s business position and the economic situation of its individual business lines, on its corporate planning and on the strategic orientation of the Bank, and we advised the Board of Managing Directors on these topics. Between meetings I, as the Chairman of the Supervisory Board, was constantly informed by the Chairman of the Board of Managing Directors about current business progress and major business events within both the Bank and the Group. We were involved in all decisions of major importance for the Bank, giving our approval wherever required after extensive consultation and examination of the matter.

Meetings of the Supervisory Board All told, five ordinary meetings of the Supervisory Board took place in the past financial year. Eurohypo AG was the focus of our discussions during the past year. The completion of this acquisition, the issuance of hybrid bonds to fund the acquisition and the progress made in integrating Eurohypo into the Commerzbank Group were addressed in detail over the course of several meetings. We also obtained regular, comprehensive reports on the Bank’s current business situation and discussed these in detail with the Board of Managing Directors. Another focus of our activities was a review of strategic options for the Bank, in particular potential acquisitions both inside and outside of Germany. In addition, the Board of Managing Directors informed us regularly about the reduction of the Bank’s REPORT OF THE SUPERVISORY BOARD 207

non-strategic equity holdings. We subjected each report of the Board of Man- aging Directors to critical analysis, in some cases requesting supplementary information, which was always provided immediately and to our satisfaction. At the meeting on February 14, 2006 our discussion focused in part on the preliminary figures for the past financial year, but mainly on the presentation of the Asset Management segment. Drawing upon detailed documents, the Board of Managing Directors described the business progress and the resulting core responsibilities of this unit and discussed the strategic options with us. At the meeting on March 28, 2006 we examined the annual financial statements and the consolidated financial statements for 2005; we reported on this in detail in the last annual report. The meeting on May 17, 2006, was devoted exclusively to preparing for the upcoming Annual General Meeting. At the meeting on July 5, 2006 the Board of Managing Directors presented current developments in the Private and Business Customers and Private Bank- ing departments, outlining the planned measures for further improving results in this segment. To supplement this information, we were informed of the latest developments in Asset Management. In the ensuing discussion, we satisfied ourselves that the expectations and targets that had been presented were plau- sible and reviewed various possibilities for action. The Board of Managing Direc- tors also reported on the status and strategy of the Corporates & Markets department and on the planned acquisition of a bank in Russia. In intensive talks with the Board of Managing Directors, we reviewed the Board’s basic appraisal of the situation in the Russian banking market and talked about the necessary pre- requisites for taking this step. At the meeting on November 2, 2006, the focus of our discussions was mainly strategy and planning, including the budget for 2007 and medium-term planning. Here the targets for the Bank and the Group, which were based on these business figures, were presented to us and we discussed them in detail with the Board of Managing Directors. In addition we listened to reports on the business progress and strategy of the Mittelstandsbank both in Germany and abroad and on projects and staff measures in this area, and were given information about the status of negotiations for the acquisition of a Russian bank. Another topic at this meeting was the Bank’s corporate governance, especially the evaluation of the Supervisory Board’s examination of its efficiency, adjustments arising due to amendments to the German Corporate Governance Code in June 2006 and the issuance of the annual declaration of compliance. Further details on corporate governance at Commerzbank and on the Supervisory Board’s examination of its efficiency can be found in this annual report on pages 13 to 16. In several meetings, we discussed matters relating specifically to the Board, in particular the new appointments of Mr Knobloch and Mr Reuther to the Board of Managing Directors and the routine extensions of appointments of Board members. 208 REPORT OF THE SUPERVISORY BOARD

Committees The Supervisory Board continues to have five committees. Their composition appears on page 212 of this annual report. The Presiding Committee convened four times during the year under review. A circular resolution on capital measures relating to the issuance of shares to employees was also adopted. Its discussions were devoted to preparing the plenary meetings and to studying the topics in greater depth, especially with regard to the business situation and the Bank’s strategic orientation. In addition, the Presiding Committee prepared the Supervisory Board decisions on the appointments of Mr Knobloch and Mr Reuther to the Board of Managing Directors and on the extensions of the contracts of members the Board of Managing Directors, and as scheduled addressed matters relating to the compensation of the Board of Managing Directors. We also talked about the Bank’s internal audit report and the greatest legal risks the Bank faces. Other topics were loans to Bank staff and members of its boards, and strategic equity holdings in the financial sector. The Audit Committee met five times altogether in 2006. With the auditors attending, it discussed Commerzbank’s financial statements and consolidated financial statements, and also the auditors’ reports. The Audit Committee requested the statement of independence by the auditors pursuant to section 7.2.1 of the German Corporate Governance Code and commissioned the auditors to conduct the audit. It arranged the main points of the audit with the auditors, also reaching agreement with them on their fee. The Audit Committee also dealt with commissions for the auditors to perform non-audit services and regularly received reports on the current state and individual findings of the audit of the annual financial statements. Other issues included fraud prevention at the bank and the internal audit. The auditors were represented at the various meetings and reported on their auditing activities. The Risk Committee convened four times during the past business year. A circular resolution pertaining to the sale of the Bank’s holding in Korea Exchange Bank was also adopted, on the basis of extensive documents. At the four meetings, the Risk Committee studied the Bank’s risk situation and risk management intensively, especially market, credit and operational risk. Significant individual commitments for the Bank were discussed in detail with the Board of Managing Directors. Another topic was a review of the Bank’s policy with regard to equity holdings. The Social Welfare Committee held one meeting during the year under review in which it dealt with employees’ training and qualification at Commerz- bank, staff turnover, company healthcare management and various Bank efficiency programmes. As in previous years, the Conciliation Committee formed pursuant to Art. 27 (3) of the German Co-Determination Act did not have to meet in 2006. The committees regularly reported on their work at plenary sessions. No conflicts of interest arose for the members of the Supervisory Board during the year under review. REPORT OF THE SUPERVISORY BOARD 209

Financial statements and consolidated financial statements The auditors and Group auditors appointed by the Annual General Meeting, PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, audited the annual financial statements and the consolidated financial statements of Commerzbank AG and also the management reports of the Parent Bank and the Group, giving them their unqualified certification. The financial statements were prepared according to the rules of the German Commercial Code (HGB) and the consolidated financial statements according to International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). The documents of the financial statements and the auditors’ reports, together with the management’s proposal for the appropriation of profit, were sent to all members of the Supervisory Board in good time. In addition, the members of the Audit Committee received the complete annexes and notes relating to the auditors’ reports; all members of the Supervisory Board had the opportunity to inspect these documents. At the meeting on March 27, 2007 the Audit Committee dealt at length with the financial statements. At the plenary session in our balance-sheet meeting on the same day we also examined the annual financial statements and the consolidated financial statements of Commerzbank AG and also the management reports of the Parent Bank and the Group including the information pursuant to Arts. 289 (4) and 315 (4) of the Ger- man Commercial Code (HGB). The auditors attended both the audit committee and plenary meetings, explaining the main findings of their audit and answering questions. At both meetings, the financial statements were discussed at length with the Board of Managing Directors and the representatives of the auditors. In view of the final outcome of the examination by the Audit Committee and of our own examination, we raised no objections to the financial and consolidated financial statements and concur with the findings of the auditors. The Supervisory Board has approved the financial statements of the Parent Bank and the Group presented by the Board of Managing Directors, and the financial statements of the parent bank may accordingly be regarded as adopted. We concur with the proposal of the Board of Managing Directors regarding the appropriation of profit.

Notes to the information pursuant to Arts. 289 (4) and 315 (4) of the German Commercial Code (HGB)

Pursuant to Art. 171 (2) of the German Stock Corporation Act (Aktiengesetz), we explain the information required under Arts. 289 (4) and 315 (4) of the German Commercial Code (HGB) in the management report on page 26 et seq. of this annual report as follows:

• The structure of the share capital is determined by the Articles of Associa- tion. Commerzbank has only issued ordinary shares, there are no preference shares or special rights of individual shareholders. Members of the Board of Managing Directors are appointed and replaced in line with legal requirements and those set forth in the Articles of Association. According to Art. 6 (2) of the Articles of Association, the Board of Managing Directors comprises a minimum of two people; in all other respects the Supervisory Board defines 210 REPORT OF THE SUPERVISORY BOARD

the number of members on the Board of Managing Directors. Amendments to the Articles of Association have been made easier within the legally per- missible scope.

• The authority of the Board of Managing Directors to increase share capital from authorized and conditional capital, to issue convertible bonds or bonds with warrants or profit-sharing certificates and to repurchase own shares allows the Bank to respond appropriately and promptly to changed capital needs.

• The agreements with the members of the Board of Managing Directors in the event of a change of control at Commerzbank are described in detail in the remuneration report on page 20 et seq. and do not require any additional explanation. The employment contracts of employees do not generally contain any provisions in the event of a change of control; the Bank has only accepted these types of provision in exceptional cases.

• The provisions that Commerzbank has negotiated with contract partners as part of its general business activities in the event of a change of control are presented in detail on page 27 and are self-explanatory.

We thank the Board of Managing Directors and all employees for their great personal commitment and efforts, which made Commerzbank’s good result in 2006 possible.

For the Supervisory Board

Martin Kohlhaussen Chairman Frankfurt am Main, March 27, 2007

211

supervisory board

Dr. Walter Seipp Daniel Hampel*) Klaus Müller-Gebel Honorary Chairman Commerzbank AG Lawyer Frankfurt am Main Berlin Frankfurt am Main

Dr. h.c. Martin Kohlhaussen Dr.-Ing. Otto Happel Dr. Sabine Reiner*) Chairman Manager Trade Union Specialist Frankfurt am Main Luserve AG Economic Policy Lucerne ver.di National Administration Uwe Tschäge*) Berlin Deputy Chairman Dr. jur. Heiner Hasford Commerzbank AG Member of the Board of Dr. Erhard Schipporeit Düsseldorf Managing Directors Consultant Münchener Rückversicherungs- Hanover Hans-Hermann Altenschmidt*) Gesellschaft AG (until January 31, 2007) Commerzbank AG Munich Essen Prof. Dr. Jürgen F.Strube Sonja Kasischke*) Chairman of the Dott. Sergio Balbinot Commerzbank AG Supervisory Board Managing Director Brunswick BASF Aktiengesellschaft Assicurazioni Generali S.p.A. Ludwigshafen Trieste Wolfgang Kirsch*) Commerzbank AG Dr. Klaus Sturany Herbert Bludau-Hoffmann*) Frankfurt am Main Member of the Board of Dipl.-Volkswirt Managing Directors ver.di National Administration Werner Malkhoff*) RWE Aktiengesellschaft Financial Services Commerzbank AG Essen Essen Frankfurt am Main Dr.-Ing. E.h. Heinrich Weiss Astrid Evers*) Prof. h.c. (CHN) Dr. rer. oec. Chairman Commerzbank AG Ulrich Middelmann SMS GmbH Hamburg Deputy Chairman of the Düsseldorf Board of Managing Directors Uwe Foullong*) ThyssenKrupp AG Member of the Düsseldorf ver.di National Executive (since April 1, 2006) Committee Berlin

*) elected by the Bank’s employees 212

Committees of the supervisory board

Presiding Committee Dr. h.c. Martin Kohlhaussen, Chairman Werner Malkhoff Prof. Dr. Jürgen F. Strube Uwe Tschäge

Audit Committee Klaus Müller-Gebel, Chairman Hans-Hermann Altenschmidt Dott. Sergio Balbinot Dr.-Ing. Otto Happel Wolfgang Kirsch

Risk Committee Dr. h.c. Martin Kohlhaussen, Chairman Dr. jur. Heiner Hasford Klaus Müller-Gebel Dr.-Ing. E.h. Heinrich Weiss

Social Welfare Committee Dr. h.c. Martin Kohlhaussen, Chairman Astrid Evers Daniel Hampel Klaus Müller-Gebel Uwe Tschäge Dr.-Ing. E.h. Heinrich Weiss

Conciliation Committee Dr. h.c. Martin Kohlhaussen, Chairman (Art. 27, (3), German Co-determination Act) Werner Malkhoff Prof. Dr. Jürgen F. Strube Uwe Tschäge 213

central advisory board

Uwe Lüders Dr. Burckhard Bergmann Dr. h.c. Hans Reischl Chairman of the Board of Chairman of the Board of Cologne Managing Directors Managing Directors L. Possehl & Co. mbH E.ON Ruhrgas AG Dr. Axel Frhr. v. Ruedorffer Lübeck Essen Bad Homburg Member of the Board of Friedrich Lürssen Managing Directors Chief Executive Dr. Ernst F.Schröder E.ON AG Fr. Lürssen Werft GmbH & Co. KG General Partner Düsseldorf Bremen Dr. August Oetker KG Bielefeld Dominic Brenninkmeyer Wolfgang Mayrhuber Senior Partner Chairman of the Board of Jürgen Schulte-Laggenbeck BREGAL INVESTMENTS Managing Directors Member of the Board of Düsseldorf Deutsche Lufthansa Managing Directors Aktiengesellschaft OTTO (GmbH + Co KG) Dr. Hubertus Erlen Cologne/Frankfurt am Main Hamburg Deputy Chairman of the Friedrich Merz, MdB Supervisory Board Dr.-Ing. Ulrich Schumacher Lawyer Bayer Schering Pharma AG General Partner Mayer, Brown, Rowe & Maw LLP Berlin Francisco Partners AG Berlin/Frankfurt am Main Munich Dietrich-Kurt Frowein Dr. Jörg Mittelsten Scheid Frankfurt am Main Dr. Walter Thiessen Chairman of the Advisory Board Chairman of the Board of Vorwerk & Co. KG Gabriele Galateri di Genola Managing Directors Wuppertal Chairman AMB Generali Holding AG Mediobanca Dr. Christoph M. Müller Aachen Banca di Credito Lawyer Finanziario S.p.A. Member of the Dr. Klaus Trützschler Milan Shareholders’ Committee Member of the Board of and the Supervisory Board Managing Directors Prof. Dr. Johanna Hey Vaillant GmbH Franz Haniel & Cie. GmbH Head of Remscheid Duisburg Institute of Fiscal Law University of Cologne Hans Dieter Pötsch Dr. Michael Werhahn Cologne Member of the Board of Member of the Board of Managing Directors Managing Directors Prof. Dr.-Ing. Dr.-Ing. E.h. Volkswagen AG Wilh. Werhahn KG Hans-Peter Keitel Wolfsburg Neuss Chairman of the Board of Managing Directors Dr. Jürgen Radomski Dr. Wendelin Wiedeking HOCHTIEF AG Member of the Board of Chairman of the Board of Essen Managing Directors Managing Directors Siemens AG President and Munich Chief Executive Officer Dr. Ing. h.c. F. Porsche AG Stuttgart 214 BOARD OF MANAGING DIRECTORS 215

‡ board of managing directors ‡

Michael Reuther Dr. Achim Kassow Nicholas Teller Wolfgang Hartmann Klaus-Peter Müller Martin Blessing Dr. Eric Strutz Bernd Knobloch

Banking departments Banking departments Banking department Staff departments Chairman of the Board Banking departments Staff departments Banking department Group Treasury German Corporates & Markets Credit Risk and Economic of Managing Directors Corporate Banking Accounting and Taxes Commercial Real Estate Public Finance Asset Management Capital Control Financial Institutions Financial Controlling International Regions abroad Risk Strategy/Market and Staff departments Group Compliance Commerz Grundbesitz- Staff department Asset Management Western Europe Operationel Risk Control Group Communications Service departments Human Resources gesellschaft mbH Legal Services Private Banking America Credit Risk Management Strategy and Controlling Information Technology Internal Auditing Private and Africa Private and Business Customers Transaction Banking CommerzLeasing und Business Customers Global Credit Risk Management Service department Immobilien AG Retail Credit Corporates & Markets Regions abroad Organization Global Credit Risk Management Central and Eastern Europe comdirect bank AG Commercial Real Estate Asia and Public Finance

216

regional board members

Corporate customers Klaus Kubbetat Private customers Mittelstand Peter Bürger Berlin, Central Germany Gustav Holtkemper Asia, Oceania Larger corporates unit Bielefeld, Bremen, Eastern Germany Cologne, Dortmund, Martin Fischedick Düsseldorf, Essen, Mittelstand Wilhelm Nüse Hamburg, Hanover, Bielefeld, Bremen, Cologne, Central and Eastern Europe, Kiel, Wuppertal Dortmund, Düsseldorf, Essen, CIS Hamburg, Hanover Joachim Hübner Andreas Schmidt Berlin, Dresden, Jochen H. Ihler Larger corporates centres Erfurt, Frankfurt, Mittelstand Central, Southern, Leipzig, Mainz, Frankfurt, Mainz, Mannheim, South-Western Germany Mannheim, Munich, Munich, Nuremberg, Stuttgart Nuremberg, Stuttgart Werner Weimann Andreas Kleffel Larger corporates centres Larger corporates centres Northern Germany Western Germany Center of Competence – Renewable Energies – Global Shipping

group chief operating officer

Frank Annuscheit Information Technology Transaction Banking 217

group managers

Markus Beumer Wolfgang Kirsch Albert Reicherzer Corporate Banking Organization Transaction Banking Backoffice

Tanja Birkholz Dr. Sebastian Klein Dr. Thorsten Reitmeyer Risk Strategy/Market and Asset Management Private Banking Operational Risk Control Germany (as of April 1, 2007) Michael Schmid Jochen Klösges Global Credit Risk Management Udo Braun Strategy and Controlling Corporates & Markets Transaction Banking Markets Hartwig Kock Roman Schmidt Dr. Thorsten Broecker Internal Auditing Corporates & Markets Financial Controlling Corporate Finance Dr. Jörg Krämer Peter Bürger Corporates & Markets Dirk Wilhelm Schuh Risk Control Research Global Credit Risk Management (until March 31, 2007) Commercial Real Estate and Ulrich Leistner Public Finance Dr. Detlev Dietz Corporates & Markets Chief Operating Officer Client Relationship Management Michael Seelhof Asset Management Chief Operating Officer Corinna Barbara Linner Corporates & Markets Jörg Erlebach Accounting and Taxes Credit Risk and Ulrich Sieber Economic Capital Control Richard Lips Human Resources (as of April 1, 2007) Group Communications Willi Ufer Dr. Mihael Foit Christof Maetze Corporates & Markets IT Production Financial Institutions Markets

Dr. Kai Franzmeyer Michael Mandel Christian Weber Group Treasury Private and Business Customers Retail Credit

Dr. Bernhard Fuhrmann Hugues de la Marnierre Klaus Windheuser Commercial Real Estate Corporates & Markets Credit Risk Management Sales Private and Business Customers Günter Hugger Legal Services Thomas Müssener Roland Wolf Chief Legal Adviser IT Applications IT Support

Oliver Jost Markus Plümer Group Compliance Corporates & Markets Research 218

managers of domestic main branches

Corporate Banking Nuremberg Düsseldorf Bernd Grossmann Andreas Vogt Berlin Jörg Schauerhammer Stuttgart Erfurt Klaus-Uwe Mühlenbruch Andreas Fabich Bielefeld Thomas Elshorst Larger corporates centres Essen Corporate Banking Manfred Schlaak Bremen Carl Kau Düsseldorf Frankfurt am Main Peter Ahls Klaus Heyer Central Germany Kai Uwe Schmidt Munich Hamburg Sven Gohlke Erhard Mohnen Cologne Michael H. G. Hoffmann Stuttgart Hanover Dr. Bernd Laber Michael Koch Dortmund Karl-Friedrich Schwagmeyer Kiel Michael Görtz Düsseldorf Private and Manfred Breuer Business Customers Leipzig Roland Löffler Essen Berlin Hans Engelmann Thomas Minks Mainz Alberto Kunze Frankfurt am Main Bielefeld Günter Tallner Edwin Kieltyka Mannheim Jochen Haaf Hamburg Bremen Jürgen Werthschulte Wolfgang Schönecker Munich Hans-Peter Rien Hanover Cologne Frank Schulz Michael Sonnenschein Nuremberg Frank Haberzettel Mainz Dortmund Peter Radermacher Dieter Mahlmann Stuttgart Thomas Vetter Mannheim Dresden Ilse Maria Arnst Dr. Mathias Ullrich Wuppertal Dr. Bernd Türk Munich Michael Bücker 219

managers of foreign branches

Amsterdam Hong Kong New York Dirk Dreiskämper Harald W. A. Vogt Werner Boensch Joachim Döpp Atlanta Johannesburg Edward Forsberg Clive Kellow Paris Felix Rüther Barcelona London Alois Brüggemann Günter Jerger Prague Dereck Rock Günter Steiner Bratislava Harry Yergey Dr. Jutta Walter Martin Horváth Los Angeles Shanghai Brno Christian Jagenberg Michael Reichel Bronislav Hybl Madrid Singapore Brussels Mariano Riestra Dr. Thomas Roznovsky Burkhard von der Osten Milan Tokyo Chicago Cristina Sironi-Sommer Norio Yatomi John Marlatt

board of trustees of commerzbank foundation

Dr. h.c. Martin Kohlhaussen Klaus-Peter Müller Executive Board Chairman Frankfurt am Main Dagmar Ruhl Frankfurt am Main Dr. Werner Verbockett Klaus Müller-Gebel Prof. Dr. Dr. h.c. mult. Bad Soden Jürgen Mittelstrass Constance Michael Hocks Frankfurt am Main 220

managers of domestic group companies

CBG Commerz Beteiligungs- Commerz Grundbesitz- Eurohypo AG gesellschaft Holding mbH gesellschaft mbH Bernd Knobloch Dr. Armin Schuler Dr. Frank Pörschke Joachim Plesser Dr. Heiko Beck Henning Rasche comdirect bank AG Leo Lousberg Dirk Wilhelm Schuh Dr. Andre Carls Martin Zielke Torsten Daenert CommerzLeasing und Karin Katerbau Immobilien AG European Bank for Hubert Spechtenhauser Fund Services GmbH cominvest Eberhard Graf Rudolf Geyer Asset Management GmbH Roland Potthast Franz Günzl Dr. Sebastian Klein Günter Ress Michael Hartmann Hypothekenbank in Essen AG Volker Kurr Commerz Service Gesellschaft Hubert Schulte-Kemper Ingo Mainert für Kundenbetreuung mbH Burkhard Dallosch Jens Müller Michael Fröhner Commerz Business Consulting Irmgard Röhm GmbH Dr. Ralf Klinge 221

managers of foreign group companies

BRE Bank SA Commerzbank Asset Management Commerzbank (Switzerland) Ltd Warsaw Asia Pacific Ltd. Zurich Slawomir Lachowski Singapore Dr. Bernhard Heye Jerzy Jó´zkowiak Ubbo Oltmanns Rolf Müller Bernd Loewen Geneva Rainer Peter Ottenstein Commerzbank Capital Jean-Pierre de Glutz Wieslaw Thor Markets Corporation Janusz Wojtas New York Commerzbank Zrt. Matthew P. Kennedy Budapest Caisse Centrale de Támas Hák-Kovács Réescompte, S.A. Commerzbank (Eurasija) SAO Oliver Sipeer Paris Moscow Hervé de Boysson Andreas D. Schwung Commerz (East Asia) Ltd. Daniel Terminet Hong Kong Pierre Vincent Commerzbank Europe (Ireland) Harald W. A. Vogt Dublin cominvest John Bowden Erste Europäische Pfandbrief- Asset Management S.A. Andreas Krebs und Kommunalkreditbank AG Luxembourg Luxembourg Heinrich Echter Commerzbank International S.A. Hans-Dieter Kemler Dr. Thomas Görgen Luxembourg Gerard-Jan Bais Bernd Holzenthal cominvest Cornelius Obert Jupiter International Group plc Asset Management Ltd. London Dublin Commerzbank Jonathan Carey Eoin Mangan (South East Asia) Ltd. Edward Bonham Carter Singapore Dr. Thomas Roznovsky 222

regional advisory committees

Baden-Württemberg Dr. Thomas Lindner Peter Smits Chairman and General Partner Chairman of the Board of Dr. Ulrich Brocker GROZ-BECKERT KG Managing Directors General Manager Albstadt (Ebingen) ABB AG SÜDWESTMETALL Mannheim Verband der Metall- und Hon. Senator Elektroindustrie Dr. h.c. Adolf Merckle Dr. Stefan Wolf Baden-Württemberg e. V. Lawyer Chairman of the Board of Stuttgart Proprietor Merckle/ratiopharm Managing Directors Group ElringKlinger AG Prof. Dr. Dr. Ulrich Hemel Blaubeuren Dettingen/Erms Chairman 2D-Holding GmbH Reinhard Nowak (Süddekor/Dakor Group) President / CEO Bavaria Laichingen Glatt Group Glatt GmbH Lawyer Manfred Höhn Binzen Manfred Behrens Neustadt Chief Executive Officer Franz-Josef Pützer Swiss Life Deutschland Hans Ulrich Holdenried Chairman of the Executive Board Munich Chairman Aluminium-Werke Hewlett-Packard GmbH Wutöschingen AG & Co. KG Dipl.-Betriebswirt Dieter Bellé Böblingen Wutöschingen Member of the Board of Managing Directors Dr. Stefan von Holtzbrinck Joachim Reinhardt LEONI AG Chairman Chief Financial Officer (CFO) Nuremberg Georg von Holtzbrinck GmbH Hugo Boss AG Publishing Group Metzingen Frank A. Bergner Stuttgart Managing Partner Dr. Hermann Roemer Richard Bergner Holding Dr. Björn Jansen Altdorf GmbH & Co. KG Managing Partner Schwabach Mannheimer Morgen/ Bernhard Schreier Dr. Haas GmbH Chairman of the Board of Dr. Andreas Buske Mannheim Managing Directors Member of the Board of Heidelberger Managing Directors Dr. Hermann Jung Druckmaschinen AG Zwiesel Kristallglas AG Member of the Board of Heidelberg Zwiesel Managing Directors Voith AG Harald Seidelmann Dr. sc. pol. Wolfgang Colberg Heidenheim Member of the Executive Board General Manager badenova AG & Co. KG BSH Bosch und Siemens Detlef Konter Freiburg Hausgeräte GmbH Head of Finance and Accounting Munich Robert Bosch GmbH Stuttgart REGIONAL ADVISORY COMMITTEES 223

Sten Daugaard Dipl.-Wirtsch.-Ing. Thomas Kaeser Dr. Hans Seidl Chief Financial Officer General Manager Chairman of the SGL Carbon AG KAESER KOMPRESSOREN GmbH Supervisory Board Wiesbaden Coburg Vinnolit Kunststoff GmbH & Co. KG Karl Haeusgen Prof. Dr. Dr. h.c. Anton Kathrein Ismaning Managing Partner Managing General Partner HAWE Hydraulik GmbH & Co. KG KATHREIN-Werke KG Klaus Steger Munich Rosenheim Member of the Board of Managing Directors Frank Haun Peter Köhr ERWO Holding AG Chairman Member of the Executive Board Nuremberg Krauss-Maffei Wegmann Martin Bauer-Gruppe GmbH & Co. KG MB-Holding GmbH & Co. KG Reiner Winkler Munich Vestenbergsgreuth Member of the Board of Managing Directors (CFO) Dipl.-Wirtsch.-Ing. Dr. Karl-Hermann Lowe MTU Aero Engines Holding AG Dirk Heidenreich Member of the Board of Munich Chief Executive Officer Managing Directors Semikron International GmbH Allianz Deutschland AG Dr. Peter Zattler Nuremberg Munich Member of the Executive Board and CFO Uwe Herold Dipl.-Ing. Thomas Netzsch Giesecke & Devrient GmbH Chief Financial Officer Managing Partner Munich Werkzeugmaschinenfabrik Erich Netzsch GmbH & Co. Adolf Waldrich Coburg Holding KG GmbH & Co. KG Selb Berlin Coburg Karsten Odemann Dr. Horst Dietz Thomas Hetmann Member of the Board of General Manager Chief Financial Officer Managing Directors Industrials Investment INA-Holding Schaeffler KG Sixt AG Council GmbH Herzogenaurach Pullach Berlin

Rainer Hilpert Prof. Susanne Porsche Jan Eder Member of the Executive Board Producer General Manager GEMA Gesellschaft für sanset Film & Fernseh- Berlin Chamber of Industry musikalische Aufführungs- produktionen GmbH and Commerce und mechanische Munich Berlin Vervielfältigungsrechte Munich Dr. Lorenz M. Raith Friedrich Floto Herzogenaurach Treasurer Dr. h.c. Karlheinz Hornung Novelis AG Member of the Board of Dipl.-Ing. Helmuth Schaak Zurich/Switzerland Managing Directors Chairman of the MAN AG Supervisory Board Munich Leistritz AG Nuremberg 224 REGIONAL ADVISORY COMMITTEES

Dipl.-Ing. Hermann Hauertmann Manfred Freiherr von Richthofen Jörg Schönbohm Managing Partner Honorary President Minister of the Interior Schwartauer Werke GmbH & Co. Deutscher Olympischer Deputy Minister-President Kakao Verarbeitung Berlin Sportbund State of Brandenburg Berlin Berlin Potsdam

Joachim Hunold Dr. Attilio Sebastio Dipl.-Kaufmann Michael Söhlke Chairman of the Board of Member of the Board of Chairman of the Board of Managing Directors Managing Directors Managing Directors Air Berlin PLC Berlin-Chemie AG E.ON edis AG Berlin Berlin Fürstenwalde/Spree

Dipl.-Kaufmann Joachim Klein Ulrich Seelemann Managing Partner President of the Consistory Bremen Umlauf & Klein Group Protestant Church GmbH & Co. Berlin-Brandenburg – Hans-Christoph Enge Berlin Silesian Upper Lusatia Partner Berlin Lampe & Schwartze KG Dr. Hartmann Kleiner Bremen Lawyer Volker Seidel British Honorary Consul General Manager Member of the Board of VME Verband der Metall- und Managing Directors Edgar Grönda Elektro-Industrie in Berlin und Volksfürsorge General Manager/Lawyer Brandenburg e.V. Versicherungsgruppe Schultze & Braun Berlin Hamburg Rechtsanwaltsgesellschaft für Insolvenzverwaltung mbH Hans-Ulrich Klose, MdB Dr. Jörg Helmut Spiekerkötter Bremen Deputy Chairman of CFO Foreign Affairs Committee Organon BioSciences N.V. Jürgen Holtermann Deutscher Bundestag Oss/The Netherlands General Manager Berlin bremenports GmbH & Co. KG Dipl.-oec. Felix Strehober Bremen Dr.-Ing. E.h. Hartmut Mehdorn Head of Finance and Controlling Chairman of the Board of GAZPROM Germania GmbH Dipl.-Kaufmann Ulrich Mosel Managing Directors Berlin General Manager Deutsche Bahn AG H. Siedentopf GmbH & Co. KG Berlin Volker Ullrich Bremen Partner Dr. Hans-Jürgen Meyer Zuckerhandelsunion GmbH Senator Dr. Ulrich Josef Nussbaum Member of the Board of Berlin Senator for Finances Managing Directors Free Hanseatic City of Bremen Vattenfall Europe AG Bremen Berlin Brandenburg Hillert Onnen Manfred Neubert Dr. Andreas Hungeling Member of the Executive Board Chairman of the Board of General Manager BLG LOGISTICS Managing Directors PCK Raffinerie GmbH GROUP AG & Co. KG Willy Vogel AG Schwedt Bremen Berlin REGIONAL ADVISORY COMMITTEES 225

Lutz H. Peper Hon. Senator Horst R. A. Hansen Andreas Maske Managing Partner Deputy Chairman of the Managing Director Willenbrock Fördertechnik Supervisory Board Maske AG GmbH & Co. KG OTTO AG Hamburg Bremen Hamburg Prof. Dr. Ulrich Nöhle Dipl.-Kaufmann Brunswick Hamburg Hans-Dieter Kettwig General Manager Hans Joachim Oltersdorf Thomas Cremer ENERCON GmbH Member of the Managing Partner Aurich Supervisory Board Peter Cremer Holding Fielmann AG GmbH & Co. KG Dr. Thomas Klischan Hamburg Hamburg General Manager Managing Partner NORDMETALL Verband der MPA Pharma GmbH Rainer Detering Metall- und Elektroindustrie e.V. Trittau Member of the Board of Hamburg, Schleswig-Holstein Managing Directors und Mecklenburg-Vorpommern Prof. Jobst Plog Finance and Accounting Hamburg Director General HELM AG Norddeutscher Rundfunk Hamburg Prof. Dr. Norbert Klusen Hamburg Chief Executive Kurt Döhmel Techniker Krankenkasse Prof. Dr. h.c. Herbert Rebscher Chairman Hamburg Chief Executive Deutsche Shell Holding GmbH DAK Hamburg Axel Krieger Deutsche Angestellten Chairman of the Board of Krankenkasse Dr. Karin Fischer Managing Directors Hamburg Majority Shareholder freenet.de AG DKV EURO SERVICE Hamburg Wilfried Reschke GmbH & Co. KG Chairman of the Board of Copenhagen Düsseldorf Managing Directors mobilcom AG Dr. Walter Richtberg Mogens Granborg Büdelsdorf Media Coordinator of Executive Vice President Hamburg Senate Danisco A/S Ralph P.Liebke Department of Copenhagen/Denmark Chairman Commerce and Labour Aon Jauch & Hübener GmbH Hamburg Rainer Grimm Hamburg Chief Financial Officer Erck Rickmers Symrise Group Dr. Arno Mahlert Managing Partner Holzminden Member of the Board of Nordcapital Holding Managing Directors GmbH & Cie. KG Prof. Dr. Ernst Haider Tchibo Holding AG Hamburg Chairman Hamburg Verwaltungs-Berufs- genossenschaft Hamburg 226 REGIONAL ADVISORY COMMITTEES

Peter-Joachim Schönberg Dipl.-Kaufmann Dr. Marietta Jass-Teichmann Member of the Board of Hans-Joachim Zwarg Managing Partner Managing Directors H.-J. Zwarg Consulting Papierfabrik Adolf Jass Behn Meyer Holding AG Sierksdorf GmbH & Co. KG Hamburg Fulda General Manager Dr. Bernhard von Schweinitz Hesse Papierfabrik Adolf Jass Notary Schwarza GmbH Notariat am Gänsemarkt Dr. Erich Coenen Hamburg Frankfurt am Main Dr. Norbert Käsbeck Wiesbaden Jörn Stapelfeld Dr. Jürgen W. Gromer Deputy Chairman of the President Dr. Dagobert Kotzur Board of Managing Directors Tyco Electronics Corporation Chairman Volksfürsorge Harrisburg, PA, USA Schunk GmbH Versicherungsgruppe Bensheim, Germany Giessen Hamburg Gerd Grünenwald Dipl.-Ing. Roland Lacher Malte von Trotha Group Managing Director/ Chairman of the Chairman Chairman Supervisory Board dpa Deutsche Presse-Agentur Goodyear Dunlop Tires Singulus Technologies AG GmbH Germany GmbH Kahl Hamburg Hanau Jürgen Lemmer Prof. Dr. Fritz Vahrenholt Dipl.-Kaufmann Bad Homburg v.d.H. Chairman of the Board of Wolfgang Gutberlet Managing Directors Chief Executive Officer Stefan Messer REpower Systems AG tegut… Gutberlet Stiftung & Co. Chairman Hamburg Fulda Messer Group GmbH Sulzbach Dr. Gerd G. Weiland Ludger Heuberg Lawyer Member of the Board of Axel Obermayr Hamburg Managing Directors Member of the Board of Chief Financial Officer Managing Directors Karl Udo Wrede Thomas Cook AG Volksfürsorge Member of the Executive Board Oberursel Versicherungsgruppe Ganske Verlagsgruppe GmbH Hamburg Hamburg Dirk Hinkel Managing Partner Dr. Michael Ramroth Dipl.-Kaufmann Ulrich Ziolkowski Hassia Mineralquellen Member of the Board of Member of the Board of GmbH & Co. KG Managing Directors (CFO) Managing Directors Bad Vilbel Biotest AG ThyssenKrupp Dreieich Marine Systems AG Wolf Hoppe Hamburg Managing Director HOPPE AG Stadtallendorf REGIONAL ADVISORY COMMITTEES 227

Ralph Riedle Dr.-Ing. Heinz Jörg Fuhrmann Dr. Günter Mahlke Technical Director Member of the Board of Deputy Chairman of the DFS Deutsche Flugsicherung Managing Directors Administration Committee GmbH Salzgitter AG Ärzteversorgung Niedersachsen Langen Salzgitter Hanover

Peter Steiner Alfred Hartmann Andreas Picolin Partner Captain and Shipowner Deputy Chairman of the One Equity Partners Chairman of the Board of Board of Managing Directors Europe GmbH Managing Directors NORDENIA INTERNATIONAL AG Frankfurt am Main Atlas Reederei AG Greven Leer Dr. Dieter Truxius Dr. Immo Querner Member of the Executive Board Albrecht Hertz-Eichenrode Chief Financial Officer Heraeus Holding GmbH Chief Executive Officer Talanx AG Hanau HANNOVER Finanz GmbH Hanover Hanover Alexander Wiegand Dipl.-Volkswirt Ernst H. Rädecke Managing Partner Andreas R. Herzog Managing Partner WIKA Alexander Wiegand Chief Financial Officer C. Hasse & Sohn, GmbH & Co. KG Bühler AG Inh. E. Rädecke GmbH & Co. Klingenberg Uzwil/Switzerland Uelzen

Dipl.-Kaufmann Axel Höbermann Joachim Reinhart Lower Saxony Chairman of the President + COO Supervisory Board Panasonic Europe Ltd. Ralf Brammer LUCIA AG Wiesbaden Chief Financial Officer Lüneburg AWD Holding AG Dr. Peter Schmidt Hanover Ingo Kailuweit Chairman Chief Executive TROESTER GmbH & Co. KG Kaj Burchardi Kaufmännische Krankenkasse – Hanover Executive Director KKH Sappi International S.A. Hanover Dipl.-Kaufmann Peter Seeger Brussels Manager Dr. Gernot Kalkoffen Shared Service Center TUI AG Claas E. Daun Chief Executive Officer Hanover Chairman of the Board of ExxonMobil Central Managing Directors Europe Holding GmbH Bruno Steinhoff DAUN & CIE. AG Hamburg Chairman Rastede Steinhoff International Dr. Joachim Kreuzburg Holdings Ltd. Dr. Heiner Feldhaus Chairman of the Board of Johannesburg/South Africa Chairman of the Board of Managing Directors Managing Directors Sartorius AG Concordia Versicherungs- Göttingen Gesellschaft a.G. Hanover 228 REGIONAL ADVISORY COMMITTEES

Dr. rer. pol. Bernd Jürgen Tesche Peter Bagel Dr. Joachim Breuer Chairman General Partner General Manager SOLVAY GmbH A. Bagel Hauptverband der gewerblichen Hanover Düsseldorf, Berufsgenossenschaften Bagel Druck GmbH & Co. KG Sankt Augustin Wilhelm Wackerbeck Ratingen, Chairman of the Advisory Board Karl Rauch Verlag KG Holger Brückmann-Turbon WERTGARANTIE Düsseldorf Chairman of the Board of Technische Versicherung AG Managing Directors Hanover Wolfgang van Betteray Turbon AG Senior Partner Hattingen Dipl.-Math. Hans-Artur Wilker Kanzlei Metzeler – van Betteray Member of the Executive Board Rechtsanwälte – Steuerberater Dr. Klaus Bussfeld MEYER NEPTUN GmbH Düsseldorf Senior Partner Papenburg Consult & Strategy GmbH Ulrich Bettermann Berlin Managing Partner Mecklenburg- OBO Bettermann GmbH & Co. Dr. Guido Colsman Western Pomerania Menden General Manager Krüger GmbH & Co. KG Prof. Dr. med. Dietmar Enderlein Wilhelm Alexander Böllhoff Bergisch Gladbach Chief Executive Officer Managing Partner MEDIGREIF-Unternehmens- Böllhoff Group Rudolph Erbprinz von Croÿ gruppe Bielefeld Herzog von Croÿ’sche Greifswald Verwaltung Wilhelm Bonse-Geuking Dülmen Group Vice President North Rhine-Westphalia BP p.l.c. Gustav Deiters Bochum Managing Partner Dr. Stella A. Ahlers Crespel & Deiters GmbH & Co. KG Chairman of the Board of Dipl.-Kaufmann Werner Borgers Ibbenbüren Managing Directors Chairman of the Board of Ahlers AG Managing Directors Dr. Peter Diesch Herford President & CEO Member of the Board of BORGERS AG Managing Directors Theo Albrecht Bocholt KarstadtQuelle AG Member of the Essen Administrative Board Dipl.-Volkswirt Peter Bosbach Aldi GmbH & Co. KG’s General Manager Dr. jur. Hansjörg Döpp Essen Schäfer Werke GmbH General Manager Neunkirchen Verband der Metall- Werner Andree und Elektro-Industrie Member of the Board of Dipl.-oec. Hans-Peter Breker Nordrhein-Westfalen e.V. and Managing Directors Member of the Board of Landesvereinigung der Vossloh AG Managing Directors Arbeitgeberverbände Werdohl ThyssenKrupp Technologies AG Nordrhein-Westfalen e.V. Essen Düsseldorf REGIONAL ADVISORY COMMITTEES 229

Klaus Dohle Claes Göransson Dr. jur. Stephan J. Holthoff-Pförtner Managing Partner General Manager Lawyer and Notary Dohle Handelsgruppe Vaillant GmbH Partner Holding GmbH & Co. KG Remscheid Hopf-Unternehmensgruppe Siegburg Essen Rüdiger Andreas Günther Dr. Udo Eckel Chairman Dipl.-Wirtsch.-Ing. General Manager CLAAS KGaA mbH Hans-Dieter Honsel V & I Management Harsewinkel Managing Partner GmbH & Co. KG, Honsel Family Holdings S.a.r.l. General Manager Dipl.-Kaufmann Dieter Gundlach Luxembourg, BFH Beteiligungsholding GmbH Chairman Vice Chairman Supervisory Board Wachtendonk ARDEX GmbH Honsel International Witten Technologies SA Christian Eigen Brussels Deputy Chairman of the Klaus Hamacher Board of Managing Directors Deputy Chairman Wilfried Jacobs MEDION AG Deutsches Zentrum für Chief Executive Essen Luft- und Raumfahrt AOK Rheinland/Hamburg – Cologne Die Gesundheitskasse Norbert Fiebig Düsseldorf Member of the Board of Stefan Hamelmann Managing Directors Managing Partner Dipl.-Ing. TU Dipl.-Wirtsch.-Ing. TU REWE Zentral AG Franz Hamelmann Dieter Köster Cologne GmbH & Co. KG Chairman of the Board of Franz Hamelmann Managing Directors Norbert Frece Projekt GmbH Köster AG Member of the Executive Board Düsseldorf Osnabrück Ruhrverband Essen Dr. h.c. Erivan Karl Haub Martin Krengel Chairman of the Board Chairman Heinz Gawlak and the Advisory Board Managing Partner Chairman Tengelmann WEPA Papierfabrik AMB Generali Asset Managers Warenhandelsgesellschaft P. Krengel GmbH & Co. KG Kapitalanlagegesellschaft mbH Mülheim an der Ruhr Arnsberg Cologne Klaus Hellmann Hans-Joachim Küpper Jens Gesinn Managing Partner General Manager Member of the Board of Hellmann Worldwide Küpper Group Managing Directors Logistics GmbH & Co. KG Velbert/Heiligenhaus MAN Ferrostaal AG Osnabrück Essen Kurt Küppers Hermann Hövelmann Managing Partner Rainer Gölz Managing Partner Hülskens Holding Managing Partner Mineralquellen und Getränke GmbH & Co. KG WITTE Automotive GmbH H. Hövelmann GmbH Wesel Velbert Duisburg 230 REGIONAL ADVISORY COMMITTEES

Assessor Georg Kunze Friedrich Neukirch Peter Rostock General Manager Chairman Wiehl Landesverband Rheinland- Klosterfrau Deutschland GmbH Westfalen der gewerblichen Cologne Dr. Jürgen Rupp Berufsgenossenschaften Member of the Board of Düsseldorf Dipl.-Kaufmann Managing Directors Dipl.-Ing. Benedikt Niemeyer Deutsche Steinkohle AG Dipl.-Kaufmann Ulrich Leitermann Chairman Herne Member of the Board of SCHMOLZ + BICKENBACH KG Managing Directors Düsseldorf Dipl.-Kaufmann Albert Sahle SIGNAL IDUNA Group Managing Partner Dortmund/Hamburg Dipl.-oec. Bernd Pederzani SAHLE WOHNEN Managing Partner Greven Prof. Dr. Dirk Lepelmeier EUROPART Holding GmbH General Manager Hagen Peter Nikolaus Schmetz Nordrheinische Ärzteversorgung Chairman of the Advisory Board Düsseldorf Dipl.-Ing. Volkmar Peters Schmetz Capital Managing Partner Management GmbH Dr. Burkhard Lohr Peters Beteiligungs Aachen Member of the Board of GmbH & Co. KG Managing Directors Moers Prof. Dr. Christoph M. Schmidt HOCHTIEF AG President Essen Dipl.-Kaufmann Rheinisch-Westfälisches Institut Eberhard Pothmann für Wirtschaftsforschung Jyri Luomakoski Executive Vice President (RWI Essen) Chief Financial Officer Vorwerk & Co. KG Essen Deputy Chief Executive Officer Wuppertal Uponor Corporation Heinz G. Schmidt Vantaa/Finland Dipl.-Kaufmann Member of the Ulrich Reifenhäuser Supervisory Board Tim Henrik Maack Managing Partner Douglas Holding AG Chairman Reifenhäuser GmbH & Co. KG Hagen ERCO Leuchten GmbH Maschinenfabrik Lüdenscheid Troisdorf Henning Schmidt General Manager Peter Mazzucco Robert Röseler Landgard Blumen & Pflanzen Chairman Chairman of the Board of GmbH Novem Car Interior Design GmbH Managing Directors Straelen Vorbach ara Shoes AG Langenfeld Dr. Peter Schörner Dipl.-Kaufmann Helmut Meyer Member of the Board of Member of the Board of Martin Rohm Managing Directors Managing Directors Member of the Board of RAG Aktiengesellschaft DEUTZ AG Managing Directors Essen Cologne Volkswohl Bund Versicherungen Dortmund REGIONAL ADVISORY COMMITTEES 231

Dipl.-Betriebswirt Horst Schübel Dipl.-Volkswirt Antonius Voss Dr. Eckhard Müller General Manager Member of the Board of Head of Finance Miele & Cie. KG Managing Directors BASF Aktiengesellschaft Gütersloh RWE Power AG Ludwigshafen Essen Reinhold Semer Prof. Dr. Marbod Muff Public Accountant and Konsul Member of the Executive Board Tax Consultant Dipl.-Kaufmann Michael Wirtz Finance and Personnel Divisions Partner Member of the Advisory Board Boehringer Ingelheim GmbH Hellweg Group Grünenthal GmbH, Ingelheim am Rhein Die Profi-Baumärkte Partner GmbH & Co. KG Dalli-Werke Mäurer & Wirtz Matthäus Niewodniczanski Dortmund GmbH & Co. KG General Manager Stolberg Bitburger Holding GmbH Dr. Reiner Spatke Bitburg General Manager Horst Wortmann Johnson Controls GmbH p.h.G. Managing Partner Klaus Rübenthaler Burscheid Wortmann Schuhproduktions- Member of the Board of Holding KG Managing Directors Werner Stickling Detmold Schott AG Proprietor Mainz Nobilia-Werke J. Stickling GmbH & Co. KG Rhineland-Palatinate Dr. Wolfgang Schmitt Verl Chairman of the Board of Benoît Claire Managing Directors Karl-Heinz Stiller Chairman of the Board of KSB AG Chairman of the Board of Managing Directors Frankenthal Managing Directors Coface Holding AG (until end-January 2007) Mainz Hans Georg Schnücker Chairman of the Chairman Supervisory Board Dipl.-Kaufmann Folkhart Fissler Verlagsgruppe Rhein Main (as of February 2007) Managing Partner Mainz Wincor Nixdorf AG VESTA GmbH Paderborn Idar-Oberstein Dipl. oec. Berta Schuppli Partner Dipl.-Kaufmann Christian Sutter Alois Kettern Helvetic Grundbesitz- Managing Partner Chairman of the Board of verwaltung GmbH A. Sutter GmbH Managing Directors Wiesbaden Essen WASGAU Produktions & Handels AG Hans Joachim Suchan Detlef Thielgen Pirmasens Administrative Director Member of the Board of ZDF Managing Directors Andreas Land Mainz Schwarz Pharma AG Managing Partner Monheim Griesson – de Beukelaer GmbH & Co. KG Polch 232 REGIONAL ADVISORY COMMITTEES

Siegfried F.Teichert Fred Metzken Dr. Hans J. Naumann Chief Executive Officer Member of the Board of Managing Partner ATS Group Managing Directors NILES-SIMMONS Industrie- ATS Beteiligungs- Aktien-Gesellschaft der anlagen GmbH gesellschaft mbH Dillinger Hüttenwerke Chemnitz Bad Dürkheim Dillingen HEGENSCHEIDT-MFD GmbH Executive Board Director Erkelenz (until November 28, 2006) Dipl.-Volkswirt Dr. Richard Weber NILES-SIMMONS- Chief Executive Officer Managing Partner HEGENSCHEIDT GmbH of the ATS group Karlsberg Brauerei KG Weber Chemnitz Tiger Wheels Limited Homburg (Saar) Chairman/CEO Midrand, Republic of South Africa SIMMONS-MACHINE-TOOL CORPORATION Herbert Verse Saxony Albany, N.Y. Partner H+H SENIOR ADVISORS GMBH Linden Blue H.-Jürgen Preiss-Daimler Gesellschaft für strategische Chairman Managing Partner Unternehmensberatung Spezialtechnik Dresden GmbH P-D Management Industries – Stuttgart Dresden Technologies GmbH Preiss-Daimler Group Karl Gerhard Degreif Wilsdruff/Dresden Saarland Member of the Board of Managing Directors Wolfgang Schmid Wendelin von Boch-Galhau, lic. oec. Stadtwerke Chemnitz AG General Manager Chairman of the Board of Chemnitz Qimonda Dresden Managing Directors GmbH & Co. OHG Villeroy & Boch AG Günter Errmann Dresden Mettlach General Manager NARVA Lichtquellen Thilo von Selchow Dipl.-Kaufmann Thomas Bruch GmbH & Co. KG Chairman of the Board of Managing Partner Brand-Erbisdorf Managing Directors Globus Holding GmbH & Co. KG ZMD Zentrum Mikroelektronik St. Wendel Dr. Wolfgang Gross Dresden AG Managing Partner Dresden Dipl.-Kaufmann Christian Erhorn f i t GmbH Business Manager Hirschfelde Rolf Steinbronn Saarbrücker Zeitung Chief Executive Verlag und Druckerei GmbH Dr. Detlef Hamann AOK Sachsen Saarbrücken General Manager Dresden Dresden Chamber of Industry Sanitätsrat and Commerce Holger Tanhäuser Dr. med. Franz Gadomski Dresden Administrative Director President Mitteldeutscher Rundfunk Ärztekammer des Saarlandes Honorargeneralkonsul Leipzig Saarbrücken Dr.-Ing. Klaus-Ewald Holst Chairman of the Board of Managing Directors VNG-Verbundnetz Gas AG Leipzig REGIONAL ADVISORY COMMITTEES 233

Saxony-Anhalt Schleswig-Holstein Thuringia

Dr.-Ing. Klaus Hieckmann Stefan Dräger Reinhard Böber Managing Partner Chairman of the Board of General Manager Symacon Engineering GmbH Managing Directors Glatt Ingenieurtechnik GmbH Barleben/Magdeburg, Drägerwerk AG Weimar President Lübeck Magdeburg Chamber of Industry Dr. Albert Michael Geiger and Commerce Prof. Dr. Hans Heinrich Driftmann General Manager Magdeburg Managing General Partner Geiger Technik GmbH Peter Kölln Garmisch-Partenkirchen Hans Hübner Kommanditgesellschaft Managing Director auf Aktien Dr. Hans-Werner Lange Unternehmensgruppe Hübner Elmshorn Chairman of the Board of Neugattersleben Managing Directors Lothar-Joachim Jenne TUPAG-Holding AG Heiner Krieg Managing Partner Mühlhausen/Thuringia General Manager Max Jenne Arzneimittel- MIBRAG mbH Grosshandlung KG Dipl.-Ing. Klaus Lantzsch Theissen Kiel Managing Partner Lantzsch VVWBC GmbH Dr. jur. Dr. h.c. Dr. h.c. Eisenach Klaus Murmann Chairman Emeritus Dr.-Ing. Michael Militzer Sauer-Danfoss Inc. Chairman of the Board of Neumünster Managing Directors Lincolnshire, Illinois/USA MITEC Automotive AG Eisenach Stephan Schopp Business Manager Andreas Trautvetter Schwartauer Werke Minister for GmbH & Co. KG aA Building and Transport Bad Schwartau Free State of Thuringia Erfurt Dr. Ernst J. Wortberg Chairman of the Supervisory Board Norddeutsche Affinerie AG Hamburg

234

seats on supervisory boards and similar bodies

Members of the Board of Wolfgang Hartmann Bernd Knobloch Managing Directors of Commerzbank AG a) Vaillant GmbH a) within Commerzbank Group: within Commerzbank Group: CommerzLeasing und Information pursuant to Art. 285, no. 10, of Immobilien AG the German Commercial Code (HGB) Commerz Grundbesitz- As of December 31, 2006 Investmentgesellschaft mbH Chairman a) Seats on mandatory supervisory boards 1st Deputy Chairman b) within Commerzbank Group: b) Seats on similar bodies Eurohypo AG Eurohypo Investment Hypothekenbank in Essen AG Banking Ltd. Klaus-Peter Müller b) within Commerzbank Group: Klaus M. Patig a) Linde AG*) Commerz Grundbesitz- gesellschaft mbH Steigenberger Hotels AG a) MAN Ferrostaal AG Deputy Chairman within Commerzbank Group: b) Korea Exchange Bank Non-standing director Eurohypo AG Dr. Achim Kassow Chairman within Commerzbank Group: a) ThyssenKrupp Steel AG Commerzbank Capital b) Assicurazioni Generali S.p.A.*) Volksfürsorge Deutsche Markets Corporation KfW Kreditanstalt für Sachversicherung AG Commerz Securities Wiederaufbau within Commerzbank Group: (Japan) Company Ltd. Liquiditäts-Konsortialbank GmbH Chairman comdirect bank AG ) Parker Hannifin Corporation* Chairman Michael Reuther within Commerzbank Group: cominvest Commerzbank International S.A. Asset Management GmbH a) within Commerzbank Group: Chairman Chairman Hypothekenbank in Essen AG Commerz Grundbesitz- Martin Blessing Investmentgesellschaft mbH b) within Commerzbank Group: Chairman Erste Europäische Pfandbrief- ) a) AMB Generali Holding AG* Eurohypo AG und Kommunalkreditbank AG Heidelberger Druckmaschinen AG*) b) within Commerzbank Group: ThyssenKrupp Services AG BRE Bank SA within Commerzbank Group: Commerzbank (Switzerland) Ltd Chairman Commerzbank Inlandsbanken Holding AG Commerz Grundbesitz- gesellschaft mbH CommerzLeasing und Chairman Immobilien AG Deputy Chairman COMMERZ PARTNER Beratungs- gesellschaft für Vorsorge- und b) within Commerzbank Group: Finanzprodukte mbH Chairman BRE Bank SA Deputy Chairman

*) listed company outside group (pursuant to no. 5.4.5, German Corporate Governance Code) SEATS ON OTHER BOARDS 235

Dr. Eric Strutz Members of the Supervisory Generali Asia N.V. Board of Commerzbank AG Generali China Life a) ABB AG Insurance Co. Ltd. RWE Power AG a) Seats on other mandatory Deputy Chairman supervisory boards within Commerzbank Group: b) Seats on similar bodies Generali España, Holding de comdirect bank AG Entidades de Seguros, S.A. Deputy Chairman cominvest Dr. h.c. Martin Kohlhaussen Asset Management GmbH Generali Finance B.V. Generali France S.A. Commerzbank Auslandsbanken a) Bayer AG Holding AG Deputy Chairman Heraeus Holding GmbH Chairman Generali Holding Vienna AG (until June 10, 2006) Commerzbank Inlandsbanken Deputy Chairman HOCHTIEF AG Holding AG Generali Investments SpA Chairman Chairman (since March 22, 2006) Schering AG Hypothekenbank in Essen AG Generali (Schweiz) Holding (until September 13, 2006) Chairman La Estrella S.A. ThyssenKrupp AG b) Mediobanca – Banca di Credito Migdal Insurance Co. Ltd. ) b) Verlagsgruppe Finanziario S.p.A.* Migdal Insurance Holdings Ltd. Georg von Holtzbrinck GmbH within Commerzbank Group: (until May 24, 2006) Participatie Maatschappij Commerzbank International S.A. Graafschap Holland N.V. Erste Europäische Pfandbrief- Uwe Tschäge Transocean Holding Corporation und Kommunalkreditbank AG – Herbert Bludau-Hoffmann Nicholas Teller Hans-Hermann Altenschmidt – a) Deutsche Schiffsbank AG Chairman b) BVV Versorgungskasse Astrid Evers EUREX Clearing AG BVV Unterstützungskasse EUREX Frankfurt AG – within Commerzbank Group: Dott. Sergio Balbinot Uwe Foullong Commerzbank Auslandsbanken a) Deutsche Vermögensberatung AG Holding AG (since March 29, 2006) a) DBV-Winterthur Holding AG DBV-Winterthur b) Air Berlin PLC within group: Lebensversicherung AG Non-executive director Aachener und Münchener EUREX Zürich AG Lebensversicherung AG Daniel Hampel within Commerzbank Group: Aachener und Münchener Versicherung AG BRE Bank SA – AMB Generali Holding AG Commerzbank Capital Markets Corporation Dr.-Ing. Otto Happel b) within group: Chairman Banco Vitalicio de España, a) GEA Group AG C.A. de Seguros y Réaseguros (until May 4, 2006) Europ Assistance Holding

*) listed company outside group (pursuant to no. 5.4.5, German Corporate Governance Code) 236 SEATS ON OTHER BOARDS

Dr. jur. Heiner Hasford within group: b) E.ON Audit Services GmbH ThyssenKrupp Elevator AG Chairman a) Europäische (since October 26, 2006) E.ON Risk Consulting GmbH Reiseversicherung AG Chairman Chairman ThyssenKrupp Stainless AG Chairman E.ON UK plc Nürnberger Beteiligungs-AG*) ThyssenKrupp Steel AG E.ON US Investments Corp. WMF Württembergische Chairman Metallwarenfabrik AG*) HDI V.a.G. (until November 24, 2006) ThyssenKrupp Technologies AG Chairman Prof. Dr. Jürgen F.Strube within group: (until September 30, 2006) D.A.S. Deutscher Automobil ThyssenKrupp Reinsurance AG a) Allianz Deutschland AG Schutz – Allgemeine Rechts- Chairman (since October 20, 2006) schutz-Versicherungs-AG (since December 1, 2006) Allianz Lebensversicherungs AG ERGO Versicherungsgruppe AG (until October 19, 2006) VICTORIA b) Hoberg & Driesch GmbH Chairman BASF AG Lebensversicherung AG Chairman within group: VICTORIA Versicherung AG Bayerische Motorenwerke AG Grupo ThyssenKrupp S.A. b) within group: (until September 30, 2006) Bertelsmann AG Deputy Chairman American Re Corporation ThyssenKrupp Acciai Speciali Terni S.p.A. Fuchs Petrolub AG Chairman Sonja Kasischke ThyssenKrupp (China) Ltd. Hapag-Lloyd AG ThyssenKrupp Risk and – Insurance Services GmbH Linde AG Chairman Wolfgang Kirsch (since December 1, 2006) Dr. Klaus Sturany

) b) COLLEGIUM GLASHÜTTEN Klaus Müller-Gebel a) Hannover Rückversicherung AG* Zentrum für Kommunikation Heidelberger GmbH a) comdirect bank AG Druckmaschinen AG*) Commerz Business Consulting Deputy Chairman RAG AG GmbH (formerly: Commerz Deutsche Schiffsbank AG Business Consulting AG) RAG Beteiligungs AG Chairman Eurohypo AG (since September 14, 2006) within group: Werner Malkhoff Dr. Sabine Reiner RWE Energy AG RWE Power AG – – RWE Systems AG Chairman Prof. h.c. (CHN) Dr. rer. oec. Dr. Erhard Schipporeit Ulrich Middelmann b) Österreichische a) Degussa AG Industrieholding AG a) E.ON Ruhrgas AG Deutsche Börse AG within group: LANXESS AG*) E.ON IS GmbH RWE Npower Holdings plc LANXESS Deutschland GmbH E.ON Ruhrgas AG RWE Thames Water Plc RAG AG SAP AG (until December 1, 2006) RAG Beteiligungs-AG Talanx AG (since September 14, 2006)

*) listed company outside group (pursuant to no. 5.4.5, German Corporate Governance Code) SEATS ON OTHER BOARDS 237

Dr.-Ing. E.h. Heinrich Weiss Employees of Commerzbank AG Klaus Kubbetat Goodyear Dunlop Tires a) Deutsche Bahn AG Information pursuant to Art. 340a, (4), no. 1, of the German Commercial Code (HGB) Germany GmbH ) HOCHTIEF AG* As of December 31, 2006 (until May 10, 2006) Pensor AG Voith AG Michael Mandel within group: Frank Annuscheit cominvest comdirect bank AG SMS Demag AG Asset Management GmbH Chairman Commerz Grundbesitz- Markus Beumer Investmentgesellschaft mbH b) Thyssen-Bornemisza Group cominvest ) Bombardier Inc.* Asset Management GmbH Erhard Modrejewski within group: Commerz Grundbesitz- Braunschweiger Investmentgesellschaft mbH Concast AG (until Feb. 2006) Baugenossenschaft eG Vice-President CommerzLeasing und Immobilien AG Jörg Schauerhammer Former members of the Herlitz AG supervisory Board Manfred Breuer Herlitz PBS AG Schumag AG Dr.-Ing. Ekkehard D. Schulz Michael Schmid Martin Fischedick a) AXA Konzern AG*) CommerzLeasing und Borgers AG Bayer AG*) Immobilien AG

Deutsche Bahn AG Bernd Grossmann (until June 30, 2006) Dr. Armin Schuler Textilgruppe Hof AG MAN AG*) ae group ag Chairman Herbert Huber RAG AG Arno Walter Saarländische Investitions- further Deputy Chairman ConCardis GmbH kreditbank AG RAG Beteiligungs-AG further Deputy Chairman (since September 14, 2006) René Kaselitz RWE AG*) (since April 13, 2006) cominvest Asset Management GmbH TUI AG*) (until May 10, 2006) CommerzLeasing und within group: Immobilien AG ThyssenKrupp Automotive AG Chairman Andreas Kleffel ThyssenKrupp Elevator AG Adolf Ahlers AG Chairman ThyssenKrupp Services AG Chairman ThyssenKrupp Steel Beteiligungen AG b) within group: ThyssenKrupp Budd Company

*) listed company outside group (pursuant to no. 5.4.5, German Corporate Governance Code)

238

glossary

Ad hoc disclosure Asset-backed securities (ABS) Benchmarks A key objective of ad hoc disclo- Securities whose interest payment Reference figures like indices, sure is to prevent insider trading. and repayment of principal are which are used, for instance, in Art. 15 of the German Securities covered, or backed, by the under- portfolio management. For one Trading Act (Wertpapierhandels- lying pool of claims. As a rule thing, they can determine the di- gesetz – WpHG) requires issuers they are issued by a special-pur- rection of an investment strategy whose securities are admitted to pose entity in securitized form. by providing the portfolio man- official trading or to the Regulated ager with orientation as regards Market to make disclosures on an Assets held for dealing purposes the composition of portfolios. For ad hoc basis. A new fact has to be Under this balance-sheet item, another, they serve as a measure disclosed if it has occurred within securities, promissory notes, of investment performance. the company’s area of activity and foreign exchange and derivative is not familiar to the public. In financial instruments which are Business continuity planning addition, the new fact must affect used for dealing purposes are A company’s emergency planning, the issuer’s net assets or financial shown. They appear at their fair covering all of its units. position or its general business value. progress and must exert a con- Cash flow hedge siderable influence on the market Associated company This entails covering the risk price of the listed securities or, A company included in the con- related to future interest pay- in the case of listed bonds, must solidated financial statements ments from a floating-interest impair the issuer’s ability to meet neither on a fully or partially con- balance-sheet transaction by its obligations. solidated basis, but rather accord- means of a swap. It is measured ing to the equity method; how- at fair value. ADR (American Depositary ever, a company which is included Receipts) in the consolidation has a signifi- Cash flow statement In order to make trading easier in cant influence on its business and This shows the breakdown and non-US equities, US banks issue financial policies. changes in a company’s cash and depositary receipts for equities, cash equivalents during the busi- whose originals are kept as a rule Available for sale ness year. It is divided up into the in their country of origin. These A term used to refer to financial items operating, investing and may be traded like equities on assets that may be disposed of. financing activities. American stock exchanges, but can be issued in various forms. Back-testing Collateral agreement An ADR may, for instance, secu- A procedure for monitoring the An agreement covering the securitize merely part of a share, quality of value-at-risk models. rity or collateral to be furnished. thereby creating an apparently For this purpose, the potential cheaper price for it. losses projected by the VaR Confidence level approach are examined over The probability with which a a lengthy period to ascertain potential loss will not exceed the whether in retrospect they were loss ceiling defined by the value- not exceeded far more frequently at-risk. than the applied confidence level would have suggested. GLOSSARY 239

Corporate governance Credit VaR Due diligence Corporate governance establishes The concept stems from the appli- The term is used to describe the guidelines for transparent cor- cation of the value-at-risk concept process of intensive examination porate management and super- for market risk to the area of credit- of the financial and economic sit- vision. The recommendations risk measurement. In substantive uation and planning of a company of the German Corporate Gover- terms, the credit VaR is an esti- by external experts (mostly banks, nance Code create transparency mate of the amount by which the lawyers, auditors). In the run-up and strengthen confidence in losses arising from credit risk to an IPO or a capital increase, responsible management; in par- might potentially exceed the ex- due diligence is needed before ticular, they serve shareholder pected loss within a single year; an offering prospectus can be protection. for this reason: also unexpected compiled. loss. This approach is based on Cost/income ratio the idea that the expected loss Economic capital This represents the ratio of ope- merely represents the long-term The amount which is sufficient rating expenses to income before median value for loan losses, to cover unexpected losses from provisioning, indicating the cost- which may differ (positively or risk-bearing items with a high efficiency of the company or of negatively) from the actual loan degree of certainty (at Commerz- one of its business units. losses in the current business year. bank currently 99.95%). It is not identical to either equity as shown Credit default swap (CDS) DAX 30 in the balance sheet or regulatory A financial instrument for taking Deutscher Aktienindex (German capital. over the credit risk from a ref- stock index), which covers the erence asset (e.g. a security or 30 largest German blue chips with Embedded derivatives credit). For this purpose, the buyer the highest turnover in official Embedded derivatives are com- of protection pays the seller of pro- trading. ponents of an underlying financial tection a premium and receives a instrument and inseparably linked compensation payment if a pre- Deferred taxes to the latter, so-called hybrid viously specified credit event These are taxes on income to financing instruments such as occurs. be paid or received in the future, reverse convertible bonds. Legally resulting from discrepancies in and economically, they are bound Credit derivative assigned values between the bal- up with one another. A financial instrument whose ance sheet for tax purposes and value depends on an underlying the commercial balance sheet. Equity method claim, e.g. a loan or security. As At the time the accounts are pre- A consolidation method in a a rule, these contracts are con- pared, they represent neither group’s accounting to cover cluded on an OTC basis. They are actual claims on nor liabilities holdings in associated companies. used in both proprietary trading to the tax authorities. The company’s pro-rata net profit/ and in managing risk. The most loss for the year is included in frequently used credit derivative Derivatives the consolidated income state- product is the credit default swap. Financial instruments whose value ment as income/loss from equity depends on the value of another investments. Credit-linked note (CLN) financial instrument. The price of A security whose performance is the derivative is determined by Expected loss tied to a credit event. CLNs are the price of an underlying object Measure of the potential loss frequently part of a securitization (security, interest rate, currency, of a loan portfolio which can be transaction or serve to restructure credit). These instruments offer expected within a single year on credit risk in order to satisfy spe- greater possibilities for managing the basis of historical loss data. cific customer wishes. and steering risk. 240 GLOSSARY

Fair value is designed to reduce the influ- Investor relations The price at which financial ence on the income statement The terms describes the dialogue instruments may be sold or of measuring and recognizing between a company and its share- purchased on fair conditions. changes in the fair value of holders or creditors. Investor rela- For measurement purposes, derivative transactions. tions targets this special group either market prices (e.g. stock- with the intention of using com- exchange prices) or – if these Hedging municative means to ensure an are unavailable – internal mea- A strategy under which trans- appropriate valuation of the com- surement models are used. actions are effected with the pany by the capital market. aim of providing cover against Fair value hedge the risk of unfavourable price Letter of comfort This is a fixed-interest balance- movements (interest rates, Usually, the commitment of a sheet item (e.g. a claim or a secu- prices, commodities). parent company towards third rity) which is hedged against mar- parties (e.g. banks) to ensure ket risk by means of a swap. It is Hybrid financial instruments orderly business conduct on the measured at fair value. These are financing instruments part of its subsidiary and the lat- which can be flexibly adjusted ter’s ability to its meet liabilities. Financial instruments to a company’s needs. In terms Above all, credits or claims, in- of character, they rank some- Liabilities from dealing activities terest-bearing securities, shares, where between borrowed funds Under this balance-sheet item, the equity investments, liabilities and and equity, making it always pos- derivative instruments of propri- derivatives are subsumed here. sible to find an optimal balance etary trading with a negative fair between the wish to take on risks value appear, and also delivery Futures and the restriction of entrepre- commitments arising from the The futures contract is a binding neurial management. Typical short-selling of securities. They agreement committing both par- examples of hybrid financial are measured at fair value. ties to deliver or take delivery of instruments are subordinated a certain number or amount of an loans, dormant equity holdings Loss review trigger underlying security or asset at a and profit-sharing certificates. A warning signal that a trading fixed price on an agreed date. unit might exceed its prescribed Unlike options, futures contracts International Accounting maximum loss. If this trigger is are very strongly standardized. Standards (IAS) reached, appropriate measures Accounting regulations approved are taken to prevent further Goodwill by the International Accounting losses. The difference between the Standards Committee. The objec- purchase price and the value of tive of financial statements pre- Mark-to-market the net assets thereby acquired, pared according to IAS is to pro- Measurement of items at current which remains after the hidden vide investors with information market prices, including unrealized reserves have been realized when to help them reach a decision profits – without purchase costs an equity investment is acquired with regard to the company’s being taken into consideration. or a company is taken over. asset and financial position and also its earnings performance, Mergers & acquisitions Hedge accounting including changes in the course In banking, M&A represents the The presentation of discrepancies of time. By contrast, financial advisory service offered to com- between the change in value of a statements according to HGB panies involved in such trans- hedging device (e.g. an interest- (German Commercial Code) are actions, especially the purchase rate swap) and the hedged item primarily geared to investor pro- and sale of companies or parts (e.g. a loan). Hedge accounting tection. of them. GLOSSARY 241

Mezzanine Profit-sharing certificate Revaluation reserve An Italian word meaning the Securitization of profit-and-loss- In the revaluation reserve, intermediate storey of a building. sharing rights which are issued by changes in the fair value of A flexible financing instrument companies of various legal forms securities and equity invest- between equity and borrowed and are introduced to official ments appear, with no effect funds in balance-sheet terms. It (stock-exchange) trading. Under on the income statement. is especially suitable for smaller certain conditions, profit-sharing businesses seeking to strengthen certificates may be counted as Securitization their capital base but not wishing part of banks’ liable funds. In a securitization, claims (e.g. to alter their ownership structure. loans, trade bills or leasing claims) Rating are pooled and transferred to a Netting Standardized assessment of the special-purpose entity or vehicle The setting-off of items (amounts creditworthiness of companies, (SPV). The SPV raises funds by or risks) which appear on different countries or of debt instruments issuing securities (e.g. ABS or sides of a balance. issued by them, on the basis of CLNs), placed with potential standardized qualitative and quan- investors. Repayment and the Online banking titative criteria. The rating process interest payments on the securi- A whole series of banking ser- forms the basis for determining ties are directly linked to the per- vices handled with IT support and the probability of default, which formance of the underlying claims offered to customers electroni- in turn is used in calculating the rather than to that of the issuer. cally (by telephone line). capital needed to back the credit risk. Ratings may be worked out Shareholder value Options by the Bank itself (internal ratings) Shareholder value gives priority Options are agreements giving or by specialized rating agencies to the interests of proprietors or, one party the unilateral right to such as Standard&Poor’s, Fitch in the case of listed companies, buy or sell a previously deter- and Moody’s (external ratings). shareholders. mined amount of goods or secu- Under this approach, the com- rities at a price established in Repo transactions pany’s management is committed advance within a defined period Abbreviation for repurchase to increasing the value of the of time. agreements; these are combi- company over the long term nations of spot purchases or sales and thus to lifting its share price. OTC of securities and the simultaneous This contrasts with a ”stakeholder Abbreviation for ”over the forward sale or repurchase of policy”, which aims to achieve a counter”, which is used to refer these securities in an agreement balance between the interests of to the off-the-floor trading of involving the same counterparty. shareholders and other groups financial instruments. involved, such as customers, Return on equity employees, providers of outside Positive/negative fair value This is calculated by the ratio funds, banks, etc. The positive/negative fair value between the pre- and after-tax One major component of the of a derivative financial instru- profit and the average amount of shareholder value principle is ment is the change in fair value equity as shown in the balance also a shareholder-oriented, trans- between the conclusion of the sheet; it indicates the return parent information policy, which transaction and the date of mea- achieved by the company on above all at major listed com- surement, which has arisen due the capital which it employs. panies is entrusted to investor to favourable or unfavourable relations. overall conditions. 242 GLOSSARY

Spread Stress testing Swaps The difference between prices or Stress tests are used in an at- Financial instruments in which interest rates, e.g. the differential tempt to model the losses pro- the swapping of payment flows between the buying and the sell- duced by extreme events, as (interest and/or currency amounts) ing price of securities, or the pre- these cannot as a rule be ade- is agreed over a fixed period. mium paid on a market interest quately presented by VaR models. Through interest-rate swaps, rate in the case of weaker credit- Generally, VaR risk ratios are interest-payment flows are ex- worthiness. based on a ”normal” market en- changed (e.g. fixed for floating vironment, rather than on very rate). Currency swaps offer the Standard risk costs rare extreme situations which additional opportunity to elimi- These represent the average ex- cannot, as a result, be repre- nate the exchange-rate risk by pected calculatory risk costs in a sented statistically – such as the swapping amounts of capital. given year (expected loss) or the 1987 stock-market crash or the valuation allowances due to the Asian crisis. Stress tests therefore Value-at-risk model (VaR) default of customers or counter- represent a rational complement VaR refers to a method of quanti- parties. to VaR analyses, and also one that fying risk. VaR is only informative is required by regulators. if the holding period (e.g. 1 day) Stop-loss limit and the confidence level (e.g. This type of limit serves to restrict Subsidiary 97.5%) are specified. The VaR fig- or prevent losses, such that if the Company controlled by its parent ure then indicates the loss ceiling fair value falls below a previously and fully consolidated. If it is of which will not be exceeded within determined level, the trading minor significance, it is not in- the holding period with a proba- position in question has to be cluded in the consolidation. In this bility corresponding to the confi- closed or the asset sold. case, the company appears at dence level. amortized cost. Stoxx Volatility The Stoxx ”family” of indices is a Sustainability The term volatility is used to char- system of European benchmark, Sustainability describes business acterize the price fluctuation of a blue chip and sectoral indices. management on a long-term basis security or currency. Frequently, Stoxx Limited itself is a joint ven- which is compatible with accept- this is calculated from the price ture between Deutsche Börse AG, able living conditions now and in history or implicitly from a price- Dow Jones & Company, SBF- the future. Its guiding objectives fixing formula in the form of the Bourse de France and the Swiss are responsibility for the environ- standard deviation. The greater Stock Exchange. ment and balanced social rela- the volatility, the riskier it is to tions. hold the investment.

243

index

Accounting 12f., 15, 53, 81, 102, 105, Equity 6ff., 11, 17, 22, 30f., 35, 37, 40ff., Principles of consolidation 102, 115 109f., 112f., 116-123, 130f., 136, 138, 140f., 45, 47, 50f., 53f., 66f., 71, 73, 75f., 82, Private and Business Customers 9, 147, 151, 155, 161f., 170, 173, 190, 203 86-89, 92, 102f., 107ff., 112f., 115f., 118, 120, 30, 50, 65f., 113, 136, 207 Accounting policies 102, 112 122-127, 136-139, 144, 147-151, 160, 162, Private banking 32f., 136 Annual General Meeting (AGM) 8, 14, 167f., 179f., 183, 188, 191, 194, 203, 207f. Profit-sharing certificates 159ff. 16, 20, 23, 26, 34, 65, 67, 106, 109, 163f., Equity Investments 200 Property/real estate 10, 40, 50ff., 65, 193, 207, 209 Executives/managers 18, 25, 27, 33f., 67, 72, 77, 79, 133, 143, 184, 198 Asset Management 9f., 30, 33, 35ff., 41, 45, 58-61, 64, 91, 96, 123f., 180 Provision for risks/provisioning 7, 12, 50, 66, 85, 125, 136, 138-141, 178, 197, 40, 81-84, 105, 119, 135, 137-142, 146, 200, 207 Financial calendar 67 174f., 183 Financial institutions 43, 86, 94, 169 Provisions 7-10, 18ff., 30, 80ff., 89-94, Balance sheet 102, 107, 113 Funds 9f., 33, 35ff., 40, 45, 53, 67, 77, 96, 102, 110, 112f., 117, 122f., 129, 132, Bancassurance 32 86f., 104, 114, 157, 159, 170, 175, 182, 184, 145, 146, 155ff., 160, 188, 190, 193f., 210 Basel II 7, 46, 51, 71ff., 76f., 81f., 84f., 90, 186f., 197 94f., 97f., 113, 174, 178, 180 Rating 41, 45, 54, 71f., 76f., 79f., 84, 86, Basic earnings per share 103, 106, 135 Goodwill 112, 115, 120, 127, 186, 188 88, 93, 97ff., 169, 174-178 Board of Managing Directors 13-22, Real-estate funds 10, 37 24-27, 64f., 74ff., 78f., 85, 89, 91f., 124, Hybrid capital 9, 55, 65, 78, 102f., 107, Remuneration 17f., 21-24, 102, 123, 164f., 174, 178f., 190-194, 201ff., 206-210 123, 127ff., 160, 171f., 186, 188 125f., 162, 190-194, 196, 210 Bonuses 8, 10, 17f., 20-23, 31, 60, 90, Reserves 115, 162, 186, 188 125, 157, 191 Income statement 7, 41, 81, 88, 96, 103, Restructuring expenses 8, 134, 135 Branch business 9, 30, 32, 65 105, 112f., 116-123, 127, 129, 145, 156, 162, Retail banking 9, 31f., 136 185, 203 Retained earnings 78, 107, 113, 161f. Capital ratios 9, 104, 186f. Internal auditing 70, 78 Return on equity (RoE) 6, 11, 17, 30, 35, Capital reserve 8, 108, 126, 162 International Corporate Banking 40, 45, 50, 54, 66f., 124, 136f. Cash flow hedges 107ff., 118, 120, 122, 45 Revaluation reserve 9, 78, 107, 161f., 147, 155, 161f., 188 Internet 13f., 16, 32, 41, 53, 60, 115, 201 188 Cash flow statement 110ff., 203 Investment banking 9, 40f., 66, 136, Risk controlling 95 Commerzbank shares 8, 18, 25, 64ff., 138-141, 178 Risk management 13, 15, 42, 72-76, 124, 194f. Investor Relations 64f., 67 78ff., 83, 85f., 89f., 95-98, 112, 174, 208 Company pension scheme 132 Investors 9, 33, 35, 37, 45, 52f., 55, 64f., Risk-weighted assets 9, 104, 142, 186f. Competition/Competitors 31, 40f., 44, 78, 93, 137, 188 51, 60 Sales 30ff., 34, 36, 42-46, 53, 60, 66, 122, Consolidated companies 102, 114, 142 Leasing 53, 102, 114, 121, 200 155, 166 Corporate banking 40, 43, 136 Lending/credit business 7, 9, 34, 40f., Seats on other boards 234-237 Corporate customers 153, 178 43, 66, 72, 80, 82ff., 86f., 89, 94f., 102ff., Securitization 104, 188 Corporate finance 45f., 66 113, 117, 119, 129, 144, 146, 157, 165, 170, Segment reporting 9, 136 Corporate Governance 13ff., 17, 104, 178, 181ff., 185 Shareholders 6, 14, 16, 23, 27, 45, 65, 201, 207f. Letter of comfort 200 99, 164f., 201, 209 Corporates & Markets 7, 10, 40, 45, 47, Liquidity 41f., 74f., 87, 89, 95, 97f., 111, Smaller businesses (SMEs) 40ff., 72 51, 66, 72, 79, 81, 85, 113, 131, 136, 178f., 117, 119, 136, 174, 179, 182, 185 Strategy 8, 10, 14, 30, 36, 45, 47, 54, 59, 181, 207 Long-term performance plans 18, 64f., 70, 72ff., 76f., 79, 82, 84f., 87, 90ff., Cost/income ratio 30, 35, 40, 45, 50, 54, 192, 194 97, 99, 104, 174f., 178, 207 103, 135, 138f. Subordinated capital 103, 107, 128, Credit derivatives 87, 167f. Mergers & Acquisitions (M&A) 47 159 Creditworthiness 27, 145 Mittelstand 7, 10, 40-44, 46, 50, 53, 66, Subsidiaries 18, 88, 91, 92-95, 103, 79ff., 83, 85, 98, 113, 136, 178 110f., 114f., 118, 120, 122f., 125f., 129, 131, Deferred taxes 112, 116, 118, 120, 123, Mortgage banks 82, 143, 154 144, 148, 150, 162, 188, 190, 194, 197, 200 135, 151, 158, 162 Multinationals 79 Supervisory Board 13-17, 23-26, 34, 65, Deposit insurance fund 197 74f., 91f., 164f., 190, 193f., 202, 206-210 Depreciation 8, 110, 120f., 132f., 137 Net commission income 8f., 12, 103, System of limits 87, 179 Derivatives 8, 25, 42, 45f., 54, 87, 102ff., 105, 130, 140ff. 107, 112, 115-122, 128, 130f., 136, 147, 151, Net interest income 12, 103, 105, 113, Taxes 6, 8, 11f., 17, 23, 34, 36, 54, 67, 93, 155, 158, 165f., 169f., 173, 181, 188 129, 137-142 105, 110, 113, 115, 123f., 126, 128, 132, Distribution 36, 46, 53, 60, 84, 88, 121, Net profit 106, 109, 110, 120 134-141, 151, 158, 190 177, 178 Notes 73, 102-107, 129, 143, 166, 170, 209 Trading activities/transactions 79, Dividend 6, 8, 14, 23, 34, 65, 106, 111, 86f., 102f., 107, 116f., 119, 121f., 128, 130, 120, 124, 130, 193, 195 Operating expenses 66, 121, 132, 135, 147, 151, 155, 158, 165, 170, 172 137 Trading profit 103, 130, 139, 142 Economic capital 78, 174 Treasury 42, 50, 108f., 136, 161f., 186 Employees/staff 8, 10, 14, 18, 22, 26, Participations 31, 37, 41, 47, 51, 137 30, 32ff., 45, 55, 58-61, 75, 78, 91, 93, 96, Payments 18f., 21f., 25, 27, 42, 44, 104, Valuation allowances 7, 81, 83f., 113, 99, 104, 108, 122-126, 134, 156f., 161, 111, 115, 117, 119, 121, 124ff., 135, 157, 119, 145f., 182 164f., 178, 190, 194ff., 202, 207f., 210 160, 191-194, 197ff. Value-at-risk 76, 88, 174, 179 Employee shares 165 Pension obligations 20, 112, 156 Personnel expenses 8, 10, 132 Write-downs 110, 129, 145f., 150, 152

244

commerzbank group business progress 1968–20061)

Business Total Customers’ Taxes Allocation Equity2) Total Staff Offices volume lending deposits paid to reserves amount of dividend paid € bn € bn € bn € m € m € m € m 1968 8.5 5.4 6.6 33.2 16.1 346 23.9 14,689 691 1969 9.8 6.5 7.1 41.8 16.3 439 32.0 15,630 743 1970 12.5 8.8 8.0 26.1 5.8 463 30.4 16,952 783 1971 15.9 11.4 9.2 39.2 13.0 541 31.5 17,533 800 1972 18.7 12.6 10.7 45.0 14.6 599 34.8 17,707 805 1973 20.5 13.5 11.1 39.2 9.2 656 40.7 18,187 826 1974 23.0 15.1 11.7 54.8 26.7 735 40.7 17,950 834 1975 29.0 18.2 14.1 97.5 42.5 844 48.8 18,749 855 1976 32.6 21.3 15.0 87.5 57.2 993 55.9 20,275 861 1977 38.6 24.0 17.3 128.0 52.3 1,165 55.9 20,429 870 1978 45.3 29.5 20.0 126.4 50.9 1,212 63.1 20,982 875 1979 52.2 34.8 20.4 97.0 20.5 1,403 64.6 21,656 885 1980 52.4 37.4 20.3 53.6 16.6 1,423 – 21,487 880 1981 53.2 38.6 21.0 52.4 12.9 1,414 – 21,130 878 1982 56.8 41.8 22.6 86.8 43.8 1,416 – 21,393 877 1983 59.1 43.3 23.2 121.3 62.3 1,491 51.7 22,047 884 1984 63.9 46.2 26.5 140.8 77.9 1,607 51.7 22,801 882 1985 71.4 48.3 28.0 164.4 89.5 1,756 72.6 24,154 882 1986 77.1 52.5 30.3 169.0 80.2 2,292 95.5 25,653 881 1987 83.8 55.7 33.5 168.0 89.8 2,379 95.7 26,640 882 1988 93.3 61.7 37.8 192.4 120.2 2,670 104.0 27,320 888 1989 99.1 64.7 43.5 252.4 143.7 3,000 115.3 27,631 897 1990 111.4 74.9 50.5 246.7 112.4 3,257 131.6 27,275 956 1991 117.1 80.7 57.2 276.6 120.1 3,420 132.0 28,226 973 1992 120.4 85.0 61.6 283.4 209.0 3,680 134.0 28,722 998 1993 147.1 92.7 68.2 310.8 143.9 4,230 176.8 28,241 1,006 1994 176.1 112.7 68.8 334.5 306.8 5,386 231.2 28,706 1,027 1995 208.1 133.1 73.2 109.4 204.5 6,297 265.8 29,615 1,060 1996 230.6 158.2 82.8 297.1 332.3 6,909 276.3 29,334 1,045 1997 276.0 185.3 93.3 489.2 295.5 8,765 344.2 30,446 1,044 1998 327.4 207.6 93.6 298.1 511.3 10,060 380.5 32,593 1,052 1999 372.1 223.2 91.0 395.6 500.0 11,141 410.8 34,870 1,064 2000 459.7 239.7 107.7 822.7 800.0 12,523 541.8 39,044 1,080 2001 501.3 239.7 116.4 –114.0 –115.0 11,760 216.7 39,481 981 2002 422.1 171.5 95.7 –103.0 –352.0 8,808 54.2 36,566 904 2003 381.6 164.7 100.0 249.0 –2,320.0 9,091 – 32,377 884 2004 424.9 160.5 105.1 352.8 212.3 11,023 149.6 32,820 965 2005 444.9 164.6 102.8 426.9 858.5 13,518 328.4 33,056 1,039 2006 608.3 316.5 141.2 587.3 1,103.9 15,311 492.9 35,975 1,106

1) as from 1997, according to IAS; 2) as from 2004 including minority interests. Novosibirsk

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